Bitwise Investments released the Q4 2022 crypto report on 19th January 2023. The information is a compilation of well-researched analysis and performance of the following crypto strongholds:
- Bitcoin
- NFTs
- Crypto Equities
- Ethereum & Emerging L1s
- DeFi
Crypto Equities Analysis by Bitwise
Q4 2022 was a challenging period for crypto equities as they went down 48.8% quarter-to-date. Most companies traded lower on negative news flow items. The equities were under duress due to overly complicated market backdrops.
The companies’ trading was also affected by a confidence crisis caused by the over-leveraged players.
The Collapse of Crypto Equities
The most logical explanation for the crypto equities going down is a lack of natural buyers for crypto equities and the solvency of particular crypto companies.
Multiple bitcoin miners went bankrupt in H2 2022 and raised the alarm among investors as they worried other companies might suffer the same fate. The investors also worried that crypto-native investors might choose crypto assets over crypto equities and traditional investors pulling back from crypto.
These fears ultimately resulted in crypto equities trading at lower valuations than traditional tech stocks and other industries. The low valuations happen despite crypto equities’ higher long-term historical revenue growth rates.
On the brighter side, crypto equities might be on their way to a strong recovery if the crypto market turns up.
Over-levered Miners Got Burned
As noted, several bitcoin miners went bankrupt in the year’s second half. Miners who over-levered in the Q4 2022 bull run did not reap as expected. The current bitcoin mining environment is not friendly to the miners, especially after taking on debt and rapid expansion.
The effects of bitcoin mining companies taking on debt and expanding rapidly were increased bitcoin mining costs and the introduction of leverage onto miners’ balance sheets. The increase in bitcoin mining cost also resulted from more mining equipment coming online.
The overleveraged miners were also under pressure as the global fuel price went up while the price of bitcoin kept falling.
The future is, however, steadfast for well-capitalized miners. Miners with lower operating costs and deep, balanced sheets came out of the crisis stronger.
Silvergate Had a More Liquid and Conservative $Si Balance Sheet Than the Average Bank
Silvergate had a uniquely liquid balance sheet that provided significant resilience during a recent “run on the bank.” This balance sheet is more fluid than an average bank’s balance sheet: While the regular loan-to-deposit ratio for a bank is 70-80%, it is 11% at Silvergate. The bank only lent 9% of its total assets as of Q3 2022.
Other Main Takeaways From the Report
The crypto report by Bitwise covered other crypto market constituents. Here are the main takeaways:
- 2022 was in step with the historical pattern of crypto despite all the industry drama.
- Ethereum has successfully challenged alternative Layer 1 blockchains, such as Solana.
- Bitcoin fell 15% in Q4.
- Ethereum proved its efficiency as a technology and asset.
- DeFi assets fell 28% in Q4, but its underlying protocols were resilient enough to remain strong as centralized lenders and exchanges went bankrupt.
- NFTs held up better than crypto assets in Q4.