To Blockchain or Not to Blockchain?

February has been a month full of significant events, especially for Bitcoin and Ethereum, even though the market remained almost flat throughout the month. ETHDenver, the largest and oldest Ethereum building event, took place at the end of February. As someone who has attended similar events over the years, I can say that it provides investors with a new and interesting perspective on the industry as a whole. It is always exhilarating to see so many people get excited about the tough mathematical challenges that lie at the core of cryptocurrency. The main event at ETHDenver is the buidlathon, which is essentially a large hackathon.

Building Building Building… not just crypto native firms

While the ETHDenver community was busy building applications, it's important to note that crypto layoffs affected a significant number of employees in January alone. According to CoinGecko data, 2,806 crypto workers lost their jobs, which is a significant number considering that 6,820 crypto workers lost their jobs in all of 2022. In other words, in just one month, crypto layoffs in 2023 reached 41% of the total layoffs in 2022.

Interestingly, demand for blockchain developers seems to be on the rise. In fact, the demand has never been higher than it currently is, according to software industry insiders. Demand for blockchain programming skills increased by 552% in 2022, as per a report by DevSkiller, which compiled over 200,000 skills assessments. Tech firms can use these assessments as part of their hiring process to vet a developer's proficiency. A significant part of this demand comes from traditional firms looking to hire developers with real-world experience beyond test environments in the crypto space. Finance firms looking to build their own blockchains could be another key driver of demand for developers.

Financial Institutions’ Best Interest

Despite the ups and downs that cryptocurrency has experienced, traditional financial institutions are still bullish on crypto. This is evident from the bold statements made by several of the mainstays of traditional finance, such as Blackrock, in support of tokenization. They are essentially bringing stocks, bonds, and other traditional financial assets onto a blockchain network.

A notable highlight of the past month is that even after a group of U.S. senators, including Elizabeth Warren and Dick Durbin, urged Fidelity to reconsider its Bitcoin embrace, arguing that digital assets exposed retirement savers to unnecessary risk, Fidelity's offering still stands. Fidelity is just one of many sizable firms that have not backed away from crypto, and it continues to publicly declare that digital assets are rife with opportunity.

Ironically, Bitcoin was created to cut out financial middlemen and let people own their own money, yet traditional financial giants are adopting crypto steadily. However, this adoption is ultimately beneficial for the crypto itself. The treasuries of crypto projects, which are used to pay salaries to developers and founders, benefit greatly if demand for the token in which the treasury is denominated increases. Therefore, indirectly, bringing crypto closer to traditional investors benefits the crypto industry as a whole.

One might wonder if traditional financial institutions are digging their own grave by becoming middlemen for crypto. However, the truth is that they are simply following their clients' best interests. If offering crypto-based products is what clients want, then financial institutions will continue to offer them.

Visualizing Investor Conditions

February has been month mostly flat in terms of price performance, but what do other indicators show? We can try to categorize the UTXOs based on how long ago the coins have been spent. We can classify Bitcoin holders based on the average time in days of coins being spent. If this value is low, coins are spent quickly after acquisition and the investor can be classified as a short-term holder (STH). If the value is high we can classify the investor as a long-term holder (LTH). More specifically, we can look at whether STHs and LTHs are selling at a profit. Currently, we see that LTHs are still selling at a loss despite the market recovery. How about STHs? STHs were actually making profits in mid-January and mid-February, but the STH-SOPR ratio has dropped below 1 again at the end of February.

*Short Term Output Profit Ratio (STH-SOPR) is a ratio of spent outputs (alive more than 1 hour and less than 155 days) in profit at the time of the window. It is calculated as the USD value of spent outputs at the spent time (realized value) divided by the USD value of spent outputs at the created time (value at creation).
*Source: CryptoQuant.com