What will the Q3 of 2022 look like for crypto?

After analyzing the disastrous Q2 for the crypto market, a report by CryptoCompare tries to predict what will happen in the coming months.

A prediction about Q3 for the crypto market

After reporting a disastrous second quarter of 2022, CryptoCompare tries to take stock of the market and predict what the course of events may be for the coming months:

“The second quarter of 2022 was catastrophic for the digital asset space. Bitcoin and Ethereum fell 56.3% and 67.4% respectively, recording one of the worst quarterly performances in their history”.

Regarding the past quarter, the event that definitely contributed greatly to this real crash was the collapse of the Terra ecosystem and its stablecoin and consequently the failure of the hedge fund Three Arrows Capital.

Among the most interesting aspects highlighted in the report analyzing the market for cryptocurrencies, stablecoins, DeFi, and NFTs, there is a denotation of how stablecoins fundamentally withstood the impact of the collapse of UST:

“In the report, we conduct a USDT Redemptions Analysis, which suggests that Tether’s collateral structure is sustainable and will be able to handle severe stress tests, as it would be able to effectively convert its T-Bills balance into cash and fulfill significant redemptions”.

DeFi and NFTs also react badly

The DeFi and NFT markets are also very negative. Total Value Locked (TVL) in DeFi protocols, falls 65.7% to $93.2 billion in Q2 2022.

The scenario for the near future seems to be mainly related to macroeconomic factors, such as the inflation figure, which could have severe consequences on cryptocurrencies, as well as that of the dollar and Nasdaq prices, which seems to have created an increasingly close correlation with the crypto market. 

CryptoComapre’s analysis looks at Tether‘s situation, which may initially have to use all cash positions to pay redemptions, and then only US-T bonds will be used for redemptions. 

The report then continues:

“Of course, this would be in extreme market conditions, where 10 – 30% of total USDT market capitalization is redeemed in the space of 7 – 30 days”.

CryptoCompare analysts say all signs point to a more sustained period of distress for the DeFi sector in the coming months, with the TVL expected to remain in the current range through 2022:

“Another challenge for DeFi protocols going forward will be their adherence to the ethos of decentralization, with a number of DeFi protocols exhibiting behaviours reminiscent of centralized entities – these have been outlined on the table below”.