Market wrap-up July 2022

After a challenging first half of 2022, in July positive sentiment finally returned to crypto markets. While all major risk assets were up in the double digits, it is interesting to see that there was quite a divergence in those positive returns. So let’s have a closer look… 

Update on the Merge 

Mid of July, the Ethereum core developers agreed on a timetable for the Merge, which aims at completion, i.e. the merge of the Ethereum mainnet with the Beacon chain, in the week of September 19th. Before this, the final testnet (“Goerli”) merge, is scheduled to take place around August 10th. The market seems to believe in this new timetable: ETH was up a hefty 60.4% in July while BTC in comparison returned 23.8%. More (hopefully positive) price volatility in ETH should be expected around the soon to be completed Goerli merge. We will watch this space closely. 

Another DeFi summer? 

A lot of DeFi tokens showed quite an impressive performance in July. When looking at some of the “bluechip” DeFi assets, namely AAVE, CRV and UNI and mapping their performance vs. BTC, it becomes clear, just how well they did:  

Figure 1: DeFi tokens vs. BTC – Total return (July 2022), Source: Kasuria 

So, while BTC was up 23.8% in July, AAVE and UNI returned 71.7% and 79.7%, respectively. Curve (CRV) cleary shot out the lights in this July-comparison with a performance of 104.1%. What is the reason for this rebound in DeFi assets? In our opinion the explanation is twofold:  

The first reason is a changing market sentiment, where investors increasingly feel that we have seen and recovered from the bottom of the market. But instead of just buying into BTC, they are looking for value assets with a strong upside case. This in turn leads investors to look into the DeFi space, which weathered the Q2 market turmoil without any major issues. Those institutions that got into deep trouble like Celsius, Voyger Digital or 3AC, are centralized organisations, not DeFi protocols.  

Reason number two: individual positive news around DeFi projects, like AAVE’s and Curves plans to issue their own stable coins or Uniswap’s listing with trading platform Robinhood certainly helped to propel their token prices and those of their peers. 

August will show if the positive developments we witnessed in July marked the starting point of a new bull market, instead of another crypto winter.