21Shares: Ethermine to Pull Plug on PoW Forks, NFTs in Collateral Face Potential Liquidations, and More!

This Week in Crypto

Last week saw a downtrend in returns and TVL of most assets and protocols in major crypto categories. Over the past seven days, Bitcoin and Ethereum have declined in price by 12.6% and 18.9% respectively. The top 3 cryptoassets within these categories are Binance Coin, Polygon, and Maker, who are down by 7.4%, 21.5%, and 20.8%. However, Polygon was the only asset to have a slight increase in its assets under management, with a 0.24% increase.

Figure 1: 7-Day Price and TVL Developments of Cryptoassets in Major Sectors

Source: 21Shares, Coingecko, DeFi Llama

Key takeaways

• Millions in long liquidation may be the main contributor to a market correction.
• Ethermine, the largest ETH mining pool, will not support PoW forks.
• Blue chip protocols continue siding exclusively with ETHPOS.
• Hundreds of NFTs face potential liquidations on BendDAO.

Spot and Derivatives Markets

Figure 2: Total Liquidations of Long and Short Positions

Source: Glassnode

The general downtrend of the crypto market may have been escalated by a liquidation spree that happened on Friday. According to data gathered by Coinglass, over 157K traders got liquidated on Friday, resulting in total liquidations of over $600M; Bitcoin traders lost over $239M, while Ethereum lost over $224M. With around $562M worth of long positions and $79M in shorts, this marks the biggest liquidation of long positions on futures since June 13, a few days before Bitcoin’s price fell below $20K.

On-chain Indicators Figure 3: NVT Ratio of Bitcoin (2011-2022)

Source: Glassnode

With traders failing to meet margin requirements leading to enormous liquidations, one on-chain indicator that can help track the realized valuation levels of an asset is the Net Value to Transactions Ratio (NVT), analogous to the price to earnings for stocks. As shown in Figure 3, an NVT ratio as high as 100 indicates that the price of Bitcoin is overvalued, whereas downtrends like the one seen on July 24 indicate that investors are buying Bitcoin at a discount. Back in December 2018 when Bitcoin’s price fell to $3K, the NVT ratio fluctuated between 13 and 33. Compared to its current NVT ratio resting at 4.5 as of Monday, Bitcoin appears to be undervalued.

Figure 4: NVT Ratio of Ethereum (2011-2022)

Source: Glassnode

When Ethereum’s price fell to $85 on December 16, 2018, the NVT ratio was 58.57. Compared to its current NVT ratio resting at 102.76 as of Monday, Ethereum may seem to be overvalued compared to historical levels.

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