The once very promising project known as the "Ethereum killer" continues to lose points in the crypto arena. According to CoinGecko's ranking, Cardano is now in 11th place by market capitalisation, coming in at $20.6 billion. It reached its peak capitalisation in 2021 when it hit $91.6 billion.


Image source: coingecko.com

Note: On CoinMarketCap, Cardano was still in the Top 10 since Lido's stETH, which has a market capitalisation of $33.6 billion, is not listed there.

In April, Cardano was definitively pushed out of 10th place by Toncoin, which has managed to increase its capitalisation from $3 billion to $25 billion in 12 months. However, Cardano's collapse started back in 2021, when it turned out that the "Ethereum killer" wasn't capable of properly working with smart contracts. After the Alonzo hardfork, the network's capitalisation and the price of ADA plummeted.


Image source: StormGain Cryptocurrency Exchange

The project's developers needed over a year to resolve the situation. Cardano missed its moment to consolidate its success, and it lost its spot to blockchains with more successful architectures. Now, along with networks such as Solana or L2 on Ethereum, Cardano no longer looks innovative. At least that's the assessment held by Grayscale, whose legal successes in 2023 opened the door to spot ETFs in the United States.

In July 2021, Grayscale added Cardano to its digital crypto fund, and in September, Alonzo identified network congestion after enabling support for smart contracts. The team believed in the product until the bitter end, but on 3 April 2024, Cardano was removed from the fund.


Image source: twitter.com/Grayscale

Cardano's problem is the lack of forward momentum. The network still doesn't support widely accepted stablecoins such as USDT and USDC. Instead, it introduced its own coin, Djed, whose capitalisation has been hovering around $3-4 million for a year now. Analytical agency K33 Research believes the lack of integration will lead Cardano to be completely forgotten.


Image source: k33.com

In the DeFi sector, the network dropped to 18th place with $385 million in total value locked (TVL). For comparison, Base, which launched last year, already has $1.5 billion.

Cardano's founder, Charles Hoskinson, always defends the network by pointing to the community's cohesion, but statistics on developer activity indicate the opposite.


Image source: tokenterminal.com

The combination of negative factors and investor disappointment has led to ADA missing out on this year's rally. Instead, it's trading down 2%.


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Spot ETFs are the leading reason why people are investing in Bitcoin. However, inflows are falling, with only $485 million coming in over the past week compared to a daily average of over $200 million. Moreover, net inflows fell into negative territory again yesterday, hitting -$224 million.


Image source: StormGain infographic

In March, a similar move was followed by a 9% correction.


Image source: StormGain Cryptocurrency Exchange

Bitcoin's biggest support group, long-term holders (LTH), is continuing to sell off Bitcoin to lock in profits. If we exclude the Grayscale fund, whose outflows persist due to high management fees, since December, LTHs have sold 614,000 BTC. That's 95,000 BTC more than has been accumulated by the newly created ETFs, with BlackRock at the head of the pack.


Image source: glassnode.com

The market is also under tangible pressure from miners, who have realised record volume on the OTC market since August 2023. Sales peaked at the end of March with 1,600 BTC per day.


Image source: twitter.com/cryptoquant_com

At the same time, the fear and greed indicator is near its maximum marks. This suggests that some market participants are overly optimistic.


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They are mostly pushing back on the notion that Bitcoin's impending halving event is a surefire reason for its price to increase. The disadvantage of such an assessment is that this procedure has a long-term effect, whereas, in the medium term, other arguments may take over, such as the cryptocurrency being overbought due to excessive optimism. Things aren't so smooth, even statistically speaking. In 2016, Bitcoin's price didn't increase until 9 months after the halving event.


Image source: kaiko.com

This time, the coin hitting a new all-time high before the halving event is exacerbating the situation. This encourages cautious investors to take profits near current highs without waiting for a potential correction.

Another difference in the current cycle is that the maximum relative drawdown (so far) has only reached 22%, whereas in the past, it has ranged from 40% to 70%.


Image source: glassnode.com

BitMEX co-founder Arthur Hayes believes that excessive expectations of the halving event could cause the price to crash by half in April.

"When most market participants agree on a certain outcome, the opposite usually occurs."


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Cryptocurrency spot trading volume jumped 108% to $2.9 trillion in March. This is the best performance since May 2021.


Image source: ccdata.io

This activity is due to Bitcoin setting a new all-time high and an influx of investors eager to participate in the new rally.


Image source: StormGain Cryptocurrency Exchange

Spot Bitcoin ETFs played a leading role in the explosive growth, attracting $12.3 billion in investments in less than four months. Trade volume on them is growing month by month, reaching $111 billion in March.


Image source: twitter.com/EricBalchunas

Trade volume in derivative contracts also grew significantly, gaining $6.2 trillion. Compared to February, that was an 86.5% increase. Meanwhile, the share of this segment fell to 67.8%, the lowest level since December 2022.


Image source: ccdata.io

The rise in the share of spot trading is predominantly driven by investors' desire to move cryptocurrency to cold wallets after buying it. As a result, cryptocurrency exchanges' reserves have fallen by 7.6% to 1.945 million BTC since the end of January. This indicates that trading participants expect Bitcoin's price to rise further.


Image source: cryptoquant.com

On 29 March, open interest in Bitcoin in the futures market set a new record of $36.3 billion. Notably, the Chicago Mercantile Exchange continues to outperform Binance at $11.7 billion and $8.4 billion, respectively. This suggests increased interest in Bitcoin from institutional players.


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The cryptocurrency market continues to gain momentum as measured by trading activity. It's possible that new records will be set in April due to the market's reaction to Bitcoin's halving event and the expected increase in volatility.


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Stablecoins' share of the cryptocurrency market continues to shrink, hitting 5.8% in March. This is the lowest value since November 2021. They are also significantly lagging behind the previous bull run in terms of volume, gathering $1 trillion in February.


Image source: coingecko.com

The first reason for the sector losing ground is the launch of spot Bitcoin ETFs in the United States. Traders from popular platforms received access to Bitcoin's volatility while bypassing the crypto exchanges.


Image source: StormGain Cryptocurrency Exchange

The base currency for settling transactions on crypto exchanges is generally stablecoins. For licensed brokers, it's usually fiat currency. In March, the volume of ETFs set a new record at $111 billion.


Image source: twitter.com/EricBalchunas

The second reason is the drop in trust in stablecoin issuers. In May 2022, the Terra project's UST, the third-largest stablecoin by capitalisation, collapsed. In February 2023, after receiving a pre-trial enforcement action, the issuer of BUSD decided not to mint any more of the token. The following month, USDC from Circle was on the verge of folding as a result of the collapse of the bank holdings its reserves in the United States.

The impact of these events on investor sentiment is clearly reflected by the volume of stablecoin supply on crypto exchanges (data on the Ethereum blockchain):


Image source: glassnode.com

At the same time, USDT's share increased to 70%, and its capitalisation rose to $105 billion.


Image source: defillama.com

This significantly increases systemic risks since the community doesn't have reliable information about the banks they use or the quality of reserves. Tether's (non-audited) financial statements continue to list "other investments" and "collateralised loans" totalling $8.5 billion.

The company's balance sheets are so opaque that the Seychelles-headquartered crypto exchange OKX refused to work with USDT in the EU due to potential claims from regulators. As a result of the adoption of the MiCA law, other operators in Europe are likely to follow this example.

Some market participants call stablecoins an oxymoron because they aren't stable. Thanks to the appearance of investment products such as spot Bitcoin ETFs and the lack of strict regulatory control, the sector's share will likely continue to shrink.


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Last week saw a record net outflow of $942 million from ETFs, with Bitcoin accounting for 96% of those funds. In a note to investors on 21 March, analysts at JPMorgan noted the cryptocurrency was overbought and risked a continued correction.


Image source: coinshares.com

Investors' decision to sell was influenced by the desire among long-term holders, whales and miners to take profits in March after hitting a new record high for Bitcoin.


Image source: StormGain Cryptocurrency Exchange

However, by the end of last week, the mood had dramatically changed, and while crypto funds continued to show cumulative outflows, cryptocurrency exchanges saw an increased withdrawal of coins to cold wallets. This is one of the signs that market participants are unwilling to part ways with coins at current prices.

The outflow from Coinbase sharply accelerated in March, shrinking the crypto exchange's reserves to 344,900 BTC (excluding institutional assets). This is a level last seen in 2015. The total reserves across all crypto exchanges also dropped after rising earlier in the month. That figure is now 1.98 million BTC.


Image source: cryptoquant.com

However, a tendency to hodl was most clearly seen in accumulation addresses, which set an inflow record on 22 March of 25,300 BTC. The signs of an accumulation address (miner and crypto exchange addresses are excluded) include:

- The absence of outgoing transactions
- More than two incoming transactions
- The latest activity taking place within the past seven years
- A balance of over 10 BTC.


Image source: cryptoquant.com

If we break down cohorts into groups, whales and sharks have moved back to accumulating Bitcoin. They're responsible for the significant loss seen in stablecoins' reserves.


Image source: twitter.com/santimentfeed

In February, BTC's price was boosted by significant inflows into spot ETFs, which faded by mid-March. However, there was no significant sell-off since other market participants quickly moved from taking profits to accumulating coins.


Image source: StormGain infographic

Despite the price 'prematurely' reaching an all-time high, most crypto enthusiasts believe that Bitcoin is very likely to keep going higher. Anthony Scaramucci, the founder of Skybridge Capital, give investors an interesting piece of advice on how to keep their nerves at bay with the sharp price changes:

"Act like you're dead with your bitcoin and don't sell your bitcoin".


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When assessing the impact of the halving event on Bitcoin, most analysts rely on the emergence of scarcity that will unquestionably lead to a price increase. However, here, we'll list a few reasons why the first reaction may be negative.

Statistic

A third of the time, Bitcoin has corrected by more than 30% since the 2016 halving. There were no significant factors for a major sell-off, and the correction was an example of the old adage "buy the rumour, sell the news". The price has risen 75% since early 2016, and after the halving, it fell by 37% from the local high to $470 in two months.



The price is up 74% this year, similarly encouraging a number of players to sell in order to lock in profits. The last time the "buy the rumour, sell the news" principle was put into action was on the approval of spot Bitcoin ETFs, with the price correcting 21% to $38,500.



Halving compensation

What makes this fourth halving different from previous ones is that, firstly, Bitcoin has reached an all-time high ahead of the event, and, secondly, a 'Bitcoin hoover' has appeared in the form of ETFs. The halving represents an ultimate reduction in incoming supply, but ETF investors are just as subject to emotion as other market participants.

They have now accumulated $11.3 billion worth of Bitcoin, thus anticipating the upcoming deficit and ensuring the coin's rise to a new high. But what happens to the price if funds start actively unloading reserves? If that happens, they would offset almost all of the good momentum from the halving in the short to medium term.

The price is already under pressure as whales, miners and long-term holders lock in profits. Meanwhile, spot ETFs have seen net outflows for the fourth day in a row now. These are excellent prerequisites for the correction to continue.



The impact of miners

This time around, competition among miners is at an unprecedentedly fierce level, with almost a third of the network hashrate being provided by publicly traded mining companies. To appreciate the gravity of the situation, one only needs to look at the yields from a terahash of power, which are increasingly lagging behind the price.



If the correction drags on, most miners will ramp up the sell-off of their resolves due to falling revenues as a result of the halving, which CryptoQuant analysts estimate at 1.8 million BTC or $119 billion. Even if only a tenth is sent to market, it would have a significant negative impact.

Conclusion

Halving certainly has the long-term positive effect of reducing the flow of fresh supply, but in the first few months after it occurs, the market reaction may be negative. If all of these risks take place, the price may roll back to $45,000.


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The excitement around the world's first cryptocurrency is gaining momentum, as evidenced by a record high of $31 billion in terms of open interest (total number of outstanding Bitcoin futures or options contracts in the market). The previous record of $24.3 billion was set in April 2021.



The funding rate has been at record levels for at least the last six months, suggesting a significant preponderance of buyers in the derivatives market.



The second-highest weekly net inflows into exchange-traded crypto funds this year ($1.8 billion) also points to the high demand. Some 94% of the inflows came into Bitcoin. Record-breaking weekly inflows of $2.45 billion were registered two weeks ago.



This was not without a spoonful of tar in a barrel of honey – the Grayscale crypto fund, which switched from a trust to spot, experienced heightened outflows again. This is now predominantly driven by the high fund management fee of 1.5% versus 0.2–0.3% for competitors. Last week, Grayscale's GBTC posted $1.4 billion in withdrawals, and the fund has lost a total of $9 billion since the relaunch.



Bitcoin's potential is also evidenced by outflows from gold ETFs. Recently, investors have increasingly contrasted these assets, which have similar limited reserves and store of value status.



However, Bitcoin ETFs are showing much more vigour. For example, a BlackRock fund took just 39 days from launch to rack up 10 billion in investments. The first gold ETF in the U. S. took more than two years to achieve such a feat.

Price dynamics in 2024 are also not in favour of gold, which is up just 2.6% compared to 58.3% for Bitcoin.



Forecasts are being revised upward as quickly as Bitcoin breaks new records. Bitwise Chief Investment Officer Matt Hougan believes that due to strong demand, the price could reach $200k or higher before the end of this year.


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