Foreword

Crypto, like any emergent technology, is best suited to those who are willing to not only accept but embrace uncertainty. Once a year, Cumberland likes to reach out to our counterparties to conduct a survey about where they see the market going. It’s always extremely instructive; our counterparty base includes every different type of market participant from the crypto landscape, including crypto funds, asset managers, protocols, exchanges, and so on.

The results of the survey were fascinating, some expected and some surprising. Some of the high-level observations, which we will dive into below:

• Even in the wake of a severe selloff, the average respondent was still high-conviction bullish.
• Most participants agree that the Fed is the most important driver of crypto markets.
• Recent market turbulence has many traders leaning away from alts and towards Bitcoin.
• Traders are overwhelmingly moving towards options as a yield enhancement tool following the collapse of yields in DeFi

For context, the timing of this survey is important to note. When it was sent out, BTC was $20,000 and ETH was $1,100. Our respondents were bullish, but the performance of the market in the past two weeks was even more exuberant. You can’t plan these things, and volatility is a fact of the life we’ve chosen.

Trend 1: Not Completely Out of the Woods Yet, But Optimism for the Future

It’s fascinating that even following a severe selloff, at a moment when the market motto had been risk-off everything, the average respondent was still extremely bullish. The median response predicted a 40% rally in BTC, and 69% of respondents thought that BTC would be higher before the end of the year. Most respondents did not think we were out of the woods yet, with the median guessing that the low for the year would be around 16,000, but excitement about upside prevailed, with the median guess for high-water-mark coming in at $32,000, which represented nearly a 60% rally from current levels. Even in a bear market, the direction is not surprising. After all, most of us are in crypto because we believe in Bitcoin; if we didn’t have a bullish streak, we’d probably still be trading FX.

The magnitude, though, was a bit surprising. After all, the median response was only predicting a 4% rally in NASDAQ, while predicting a 60% correlation between NASDAQ and BTC. Again, there’s a heavy self-selection component here, so it’s not surprising that our bullish respondents were more bullish on BTC than equities, but crypto markets this year have been dominated by equities. It is, of course, possible for this correlation to break down, and it does seem people are expecting it to decrease. However, it still will be difficult to get a sharp rally in BTC without also seeing a significant bounce in equities.

Trend 2: All Eyes on the Fed

It’s very striking that the most common response for both positive and negative catalysts is movement by the Fed with 31% of all respondents cited it as a potential positive catalyst, and 32% cited it as a potential negative catalyst.

This seems paradoxical, but a view emerges. Rate hikes during this cycle have not been a surprise, and have been communicated very well to the market. At this point, the forward markets are confidently predicting a 3.5% rate at the end of the year.

However, the survey respondents surprisingly forecast a lower rate, closer to 2.5%. If the Fed does indeed blink, and backs off increasing rates at its projected pace, the market would likely take it as a positive catalyst. (In our view, this isn’t that outlandish; the shape of the forward curve is already predicting a chance at rate cuts in 2023).

Trend 3: Getting Ready for the Merge

Another popular response for a positive market catalyst is the Ethereum Merge, with the median of respondents guessing that it would happen in December 2022. Unfortunately, the results of the survey predates when a new date was recently announced for the Goerli Testnet merge indicating that the merge comes earlier in the year. Indeed, Cumberland’s Research team expects the mainnet merge as early as September.

Since the Goerli dates were announced, ETH/BTC has rallied from .055 to .07. Respondents in this survey were not as bullish on ETH as they were on BTC; the median guess for ETH’s end-of-year price was 1500, which combines with the median BTC prediction of 28k to lay out a .052 ETH-BTC price.

Trend 4: Bullish on Crypto; Bearish on ETH & ALTs

Again, seeing crypto bulls in a crypto survey is not that surprising. However, it was a somewhat surprising to see this bearishness on ETH-BTC, and on alts in general. The median respondent thought that BTC dominance would rise, from 44% to 49%.

There was also a very mixed response to the question “do you expect to have a higher or lower allocation to alts?” with only 49% saying “Higher”; again, a surprising result given the inherent bullishness of the group surveyed.

The most popular alt selected was SOL, followed by MATIC, DOT, AVAX, and AAVE.

Trend 5: Middling DeFi Enthusiasm Begets Strong Options Demand

Respondents thought that TVL in DeFi would go up, but the feelings there don't seem too strong. The median prediction was a 23% increase, which means respondents thought TVL would drop in ETH terms, since the median ETH prediction was +36%. This isn't necessarily inconsistent, since a lot of the TVL in DeFi is locked in stablecoins. Participants expect the ETH yield to be around 5%, which is in-line with our research team's predictions.

One striking statistic is that nearly 60% of all respondents said that the failure of UST makes them more likely to use options strategies to generate yield.

We’ve seen a similar sentiment in practice as well: at the beginning of the year, only options specialists were asking Cumberland to trade options products. Now, we are seeing interest from across the spectrum, including funds, treasuries, and even exchanges.

Trend 6: Plenty of Dry Powder Available

It’s all well and good that crypto participants are bullish, but if funds are fully deployed, it doesn’t mean much. Fortunately for price prospects, the median respondent had 50% of their investment capital in either cash or stablecoins.

This may be a bit lower after the rally last week, but it absolutely demonstrates a good deal of dry powder. And nearly two-thirds of respondents said they would have a higher percentage of overall allocation deployed by the end of the year.

Trend 7: What about NFTs? Leave Them to Retail

Our respondents didn't seem to have much of a view on the floors of CryptoPunk or Bored Ape prices, showing a pretty tight distribution of responses right around current prices. This can be used as a bit of evidence that institutions are not that focused on NFTs, but are neither bullish or bearish, instead recognizing them as a largely retail phenomenon - even the very expensive ones.

Appendix

Complete Survey Results

• BTC-USD is currently trading at $20,000. Where do you expect it to trade on December 31, 2022?

• What is your prediction for the low point on BTC in 2022, from this point forward?

• What is your prediction for the high print on BTC in 2022, from this point forward?

• NASDAQ is currently trading at $11,500. Where do you expect it to trade at on Dec 31?

• Year-to-date, the correlation between NASDAQ and BTC is 70%. Where do you expect it to be in the second half of 2022?

• The Fed’s short-term interest rates are currently 1%. Where do you expect rates on Dec 31?

• BTC dominance is currently 44%. Where do you expect it to be on Dec 31? (BTC dominance is the market cap of BTC divided by the overall market cap of crypto)

• What do you see as the most significant positive catalyst for the next move higher in crypto?

• What do you see as the most significant negative risk to crypto markets at the moment?

• ETH-USD is currently trading at $1,140. Where do you expect it to trade on Dec 31?

• When do you expect The Merge to go through?

• What do you expect ETH staking yield to be post-merge? (Staking yield only, ignore deflation)

• The DeFiLlama Defi TVL index is currently $75.26b. Where do you expect this to be on Dec 31?

• After the failure of UST, are you more or less likely to use option strategies to generate yield?

• What percentage of your investment capital is currently in cash or stables?

• On Dec 31, do you expect to have a higher or lower percentage of your allocation deployed?

• Of the capital you have that is not in cash or stables, what percentage is in liquid coins (as opposed to private deals)?

• On Dec 31, do you expect to have a higher or lower percentage of your allocation in liquid coins, compared to private deals?

• Of your allocation in liquid coins, what percentage is in Alts? (Anything besides BTC and ETH)

• On Dec 31, do you expect to have a higher or lower percentage of your allocation in Alts?

• Have recent developments in crypto (high correlation to stocks, UST failure, -60% retracement in BTC) changed your core investment approach?

• By what percentage do you expect to grow or reduce your team’s headcount from now until the end of 2022?

• Do you expect to see another major stablecoin depeg in 2022?

• Which alt do you see the most upside in for the rest of 2022?

• The floor for CryptoPunk NFTs is currently 75.85 ETH (from LarvaLabs, creator). Where do you expect this to be on Dec 31?

• The floor for Bored Ape NFTs is currently 99.99 ETH on OpenSea. Where do you expect this to be on Dec 31?