There has long been a saying in the crypto market: the bull market is optimized for speculation while the bear market is optimized for development. The third quarter of 2022 reflected just exactly. There were a lot of innovations and enhancements in the technology of different blockchains. Along with short rallies, the long-term prospect is now much brighter for the industry.

Crypto events in Q3

The Merge of Ethereum

On September 15, 2022, The Merge was successfully completed amid tremendous excitement. Users and programs were unaffected, and validator breakdown and block failures were few. Ethereum Proof-of-Work (ETHW), which trades at about 0.5 % of the Ethereum market cap on futures markets at the time of writing (17 October), is an ongoing Proof-of-Work fork that miners produced. Users have shown no support for the chain, while infrastructure providers have shown only sporadic assistance. The protocol appears to have been doomed from the start due to coordination issues by the team who launched it.

The block rewards were reduced by 90% as a result of the Merge. Both the network's inflation and its security expenditure are dramatically reduced as a result. Ethereum would have had a slightly net deflationary supply burning 1,600 more ETH than cumulative validator awards if PoS had been implemented since the start of the quarter. ETH would have experienced deflation for practically the whole time from the introduction of EIP-1559 in August 2021 if the impacts of The Merge had been simulated starting at the beginning of 2020.

ETH deflation

Source: Messari

The switch to PoS also enables Ethereum to reduce energy consumption by 99.95%. The Merge should lessen ESG worries about Ethereum'consumption even more. This should encourage more enterprises to use ETH as an investable asset or to use the blockchain itself for operations. Previously, famous firms such as Mozilla, Discord, and Tesla had to suspend their blockchain implementation plans due to environmental concerns.

>>> Read more: What comes next after The Merge?

Cardano Vasil Hard Fork

On September 22, Cardano's long-awaited Vasil update finally went live after a number of delays and several problems. The hard fork is intended to boost Cardano's decentralized apps (DApps) development potential and to increase the ecosystem's scalability and general TPS from the outside.

The update, named after Vasil St. Dabov, a well-known Cardano community member who recently died in 2021, would improve the ecosystem's TPS, efficiency, and block latency. The diffusion pipelining method, which aims to speed up block propagation times while expanding the network's capacity for transaction processing, will also be used as a result of the hard fork.

Three major Cardano Improvement Proposals (CIPs), namely CIP-31, CIP-32, and CIP-33, will be introduced with the Vasil hard fork. CIP-31 will encourage the development of a new reference input system that will enable DApps to access transactional output data without having to reproduce it, greatly streamlining and speeding up the process.

In addition, CIP-32 aims to increase Cardano's inherent degrees of decentralization by giving network users access to on-chain data storage.

By altering the native programming script of the system, CIP-33 will make transactions lighter and enable quicker processing at lower costs. Lastly, Vasil will also include the introduction of a different innovation known as CIP-40. To aid in improving block transmission without complete validation, a new output transaction method will be introduced.

Plutus, the primary smart contract programming language for Cardano, has also undergone improvements and will now be more functionally sophisticated than it was before. Vasil will make it simpler to interact with Cardano's UTXO paradigm while keeping the platform's transaction burden off-chain, which will further enhance platform security.

Sui and Aptos emerge

The third quarter of 2022 witnessed a lot of new innovations. Sui and Aptos are among them. In the prospect that modular blockchains are gaining ground with the news of the token launches of Optimism and Starknet as well as the release of Polygon zkEVM, the dispute between L1 and L2 is fueled by the dominating monolithic candidates who assert that L1s like Solana already suffice. Both Aptos and Sui are ultra-high TPS L1 blockchains that look for ways to scale their base layer networks, which makes them comparable in this regard. On the other hand, the ways in which they see and approach scalability augmentation, such as in terms of consensus algorithms and architectural design, are different. Sui is positioning itself as an object-centered blockchain with a more open development environment, whereas Aptos is more of the traditional sort.

Both Aptos and Sui are on testnet phase. Many people predict that when Aptos and Sui move to mainnet, it can be the new narrative for the market which can lead to a rally or even a next bull case.

>>> Read more: Aptos versus Sui: A Deep Comparison

The Dollar reigns supreme

Throughout the third quarter, one of the most discussed topics is the dollar's power over other currencies. The dollar has reached its highest level since 2000, having risen 22% versus the yen, 13% against the Euro, and 6% against emerging market currencies since the beginning of the year. Given the dollar's dominance in international commerce and finance, such a dramatic strengthening of the dollar in a couple of months has significant macroeconomic ramifications for practically all countries.

Dollar surge

Source: IMF

While the United States' proportion of global merchandise exports has decreased from 12% to 8% since 2000, the dollar's share of global exports has remained at 40%. The weakening of many nations' currencies compared to the dollar has made the fight against inflation more difficult. The expected pass-through of a 10% dollar appreciation into inflation is 1% on average. Such pressures are particularly intense in developing countries, reflecting their greater reliance on imports and larger percentage of dollar-invoiced imports when compared to mature economies.

The strengthening of the dollar is also resonating across global balance sheets. USD denominates over half of all cross-border loans and foreign debt securities. While emerging market governments have made strides in issuing debt in their own currency, their private business sectors are heavily indebted in dollars. As global interest rates climb, financial conditions in many nations have tightened significantly. A rising dollar exacerbates these pressures, particularly for some developing markets and many low-income nations that are vulnerable to financial problems.

As the situation is getting worse and worse, cryptocurrencies appear as the potential hedge for the fiat break. Many people believe that when the FED’s QT is over, there will be more money pouring into the market. The flow will be from the bond market to the stock market and then the crypto market.

>>> Maybe you should read about: Fiat system break: A bull case for Bitcoin

Market Overview

July

Market trends

Strong recoveries have placed throughout the entire investing landscape following a tough few months for asset markets. The Nasdaq (+12.5%) and ETH (+57%) had excellent months, and the correlations between BTC/ETH and the S&P/QQQ remain close to all-time highs. Along with ETH's rise, BTC's rally (+21%) helped rekindle risk throughout the whole crypto environment.

The market's willingness to take risks was further demonstrated during the month of July when sector-wide rallies were sparked by both narrative and fundamental events. The announcements of AAVE (+76%) and CRV (+80%) stablecoins, LDO's (+394%) proximity to the merging through stETH, and protocol advancements from YFI (+115%) and MKR (+21%) drove the sector skyward, making DeFi the highest performing sector this month. Other top monthly performers demonstrating rotations and risk comeback included XMON rallying (+477%) on the official launch of Sudoswap, Optimism's (OP, +209%) comeback, Synapse (SYN, +157%), and Polygon's MATIC (+100%) as a result of their zkEVM and other narrative-related announcements. The relative risk-on atmosphere was predicted to remain as we move into August, but the emphasis was supposed to shift to ETH's robustness before the merging.

Market highlights

Layer 1

Cosmostation Wallet supported 40+ ATOM networks and L1/L2s that are EVM compatible.
Binance burned $405 million in BNB as part of its aim to restrict supply to 100 million tokens. The BNB chain launched DappBay, a dapp aggregator center featuring anti-scam warnings.
RUNE's THORChain, a cross-chain DEX, is starting to phase out RUNE pegged ETH.
ATOM ecosystem received the first pricing oracle for IBC through Umee.
The Cosmos (ATOM) ecosystem had access to THORChain (RUNE) liquidity.
Moonbeam from DOT collaborated with OSMO from Cosmos to provide direct exchanges and interoperability between the Cosmos and Polkadot ecosystems.
SOL implemented the long-awaited fee-based execution priority.

Layer 2

Scroll, zkEVM-based ZKRs, published a pre-alpha version for testing.
zkSYNC (token at some time) claimed that the zkEVM rollout will be available on the mainnet in 100 days (Friday, October 28th)
StarkWare confirmed the StarkNet token, which would ultimately be utilized for transaction fees on the ZKR, however airdrops will not occur until next year, and tokenomics are horrible.
InvisibL3 would be an L3 ZKR powered by StarkWare that permits private transactions, according to ZigZag (ZZ), an L2 ZKR DEX.
Aztec Connect, a ZKR-enabled private DeFi transaction, was available on the mainnet.
Arbitrum deployed the Nitro update on the testnet, the mainnet would follow in a few weeks.

DeFi

Curve (CRV) hinted that a new over-collateral stablecoin is on the way.
AAVE officially approves the development of the collateralized stablecoin GHO.
MKR — MakerDAO passed two significant votes in July, one diversified its treasury with US treasuries/IG corporate bonds, and the second established a DAI vault for Huntingdon Valley Bank comprised of RWAs (real-world assets)
Synthetix (SYN) joined forces with Jump Crypto.
SUSHI introduced a cross-chain swap AMM based on LayerZero's Stargate(STG) technology.

NFT

The volume of Art Blocks collections such as Squiggles and Anticyclone rose significantly.
Clone X launched complete 3D files with commercial rights.
Oddities of Moonbirds were revealed, and Birds earned silver nests.
NFT Worlds have plummeted since Minecraft banned NFTs.
Pudgy Penguins airdropped soulbound tokens and revealed new toys.
Over 4,500 people attended The Otherside's First Trip tech demo.

Fundraising

Variant raised $450 million, including a $150 million seed round and a $300 million opportunity fund.
Multicoin Capital announced the launch of its third fund, which would invest $430 million.
Aptos Labs, founded by ex-Facebook developers, raised $150 million in series A funding for its new L1 chain.
Konvoy Ventures launched a $150 million web3 gaming fund.
Animoca Brands, a gaming and venture firm, raised $75 million at a valuation of $5.9 billion.
Unstoppable Domains, digital identity as a network of trust, got $65 million at a $1 billion valuation to enhance and incentivize user on-chain reputations and eliminate payment friction.
Halborn, a blockchain security business located in Miami, has raised $90 million in series A funding.
Kaiko, a blockchain analytics business, raised $53 million.
PolySign, a crypto infrastructure and custody startup, raised $53 million.
Hidden Road, a cryptocurrency credit and prime brokerage platform, raised $50 million.
Hashflow, a cross-chain interoperable DEX, raised $25 million at a $400 million value.
Gnosis Safe earned $100 million in token sales and rebrands as Safe, abandoning Gnosis.
BNP Paribas, France's largest custodian bank ($13.4 trillion), entered the crypto custody market.

August

Market trends

Everyone's attention was focused on the imminent and last ETH testnet Goerli merging. Fortunately, the simulated merging was successful, and ETH's long-awaited switch to PoS is now set for September 15th. Unfortunately, two different federal acts in the form of sanctions and interest rate regulations overshadowed ETH's planned merger. OFAC sanctions were imposed against Tornado Cash and a number of linked ETH addresses, while the FED restated its commitment to combatting inflation by lowering demand and asset prices by hiking interest rates. Following a strong recovery off the bottom in July, BTC (-15%), ETH (-6%), SOL (-23%), and other tokens throughout the ecosystem fell during August as the market digested diminishing liquidity, greater regulatory supervision, and equity selloffs. While macro uncertainty persists, several sectors have remained unaffected by a mixture of fundamental and narrative headwinds led by ATOM (+21%) and the related Cosmos ecosystem, CHZ (+50%) and related fan tokens, XMON (+16%) bringing liquidity and semi-fungibility to what is left of NFT volume. DPX (+76%), GMX (+20%), and MAGIC (+55%) leading the trending real yield and L2 lineup as Arbitrum launched their Nitro.

August monthly change

Source: Messari

Market highlights

Layer 1

ATOM updates were included in the whitepaper 2.0; monetary modifications to ATOM will include "hub as fund, sound money"; Updates to the Interchain Service include "multi-hop routing, interchain security, and protocol regulated value."
Jump Crypto has been developing a new validator client for Solana in order to increase scalability and dependability.
Dogechain has launched a native token (DC)

Layer 2

Arbitrum completed the Nitro migration improvement, significantly lowering transaction costs while enhancing the speed and scalability of the optimistic rollup.
OP posted about Optimism's future, their Bedrock improvement, rollup decentralization, and the possibility of OP's Bedrock using ZK -tech
Immutable X (IMX) L2 compatibility had been implemented directly to GameStop's Wallet; worldwide NFT collection Webb would premiere Season 1 on IMX.

DeFi

AAVE had officially approved the development of the collateralized stablecoin GHO.
Liquid ETH staking derivative, Rollup, Fraxlend, and Fraxswap are among the many improvements and products under the development of Frax Finance.
Coinbase released the cbETH liquid staking token ahead of the Merge.
MakerDAO's vault and real-world asset integration were operational.
Synthetix (SYN) would stop token inflation and cap supply at 300 million through SIP-276.
Redacted Cartel (BTRFLY) had released Redacted v2.
Berachain has stated that it would offer a "DeFi focussed EVM compliant L1 built on Cosmos SDK driven by Proof of Liquidity Consensus".
THORSwap (RUNE) announced a full-featured ETH DEX aggregator that allows native BTC to be transferred to any Uniswap compatible ERC-20 and vice versa.
The conversion of dYdX (DYDX) to a standalone Cosmos SDK chain is 55% complete.

NFT

Magic Eden created an Ethereum marketplace and accepted Ethereum payments.
Solana launchpad was available from OpenSea.
Sudoswap grew in popularity, reached $30 million in volume, and sparked royalty conflicts.
X2Y2 offered the opportunity to pick how much royalties to pay.

Bridgeworld Harvesters had been operational, ushering TreasureDAO into its next phase.
Clone X provided a comprehensive array of physical items for holders.
CryptoDickButts hit new highs.
Long-awaited IP agreement upgrades for CryptoPunks and Meebits were revealed
Moonbirds go CC0, and Moonbirds 2 were announced at Future PROOF.
Pudgy Penguins choose toy representatives, establish a new advisory board, and announce a children's book and price increase.
RENGA mints the last of the supplies before the disclosure.

Fundraising

Renowned macro fundBrevan Howard raised $1 billion for a new flagship crypto fund.
CoinFund announced the creation of a new $300 million crypto fund.
Shima Capital got $200 million from Bill Ackman, Dragonfly, Animoca, Andrew Yang, and others to invest in its crypto activities.
Dragonfly Capital rebranded as Dragonfly and bought the 2014-founded crypto firm Metastable Capital ($400M+ AUM).
Animoca Brands Japan raised $45 million at a pre-money valuation of $500 million.
Bitcoin Depot, a crypto ATM startup, would go public in a SPAC with an $885 million value.
Tomorrow, Crypto, a BTC/ETH mining infrastructure firm, would go public via SPAC merger, valued at roughly $310 million.
Messari, a crypto data platform, intended to raise $35 million at a valuation of $300 million.
Spartan Labs is a $100 million spin-off from Spartan Group that will develop and market goods.
LongHash Ventures has announced the launch of a new $100 million fund.

September

Market trends

As September approached, there was a long list of anticipated changes across the crypto industry that I had already discussed multiple times. The updates are listed below, with the apparent highlights being ETH's successful switch to PoS and tokenomics revamps/confirmations from LINK, ATOM, and XMON (SUDO). In general, crypto showed some surprise relative power throughout September while macro markets continued to crash through Friday's third-quarter closing. The S&P (+5.55%) and Nasdaq (+5.38%) have rallied in the first two trading days of Q4, offering hope that macro will play nice this month, resulting in a lucrative October.

September change

Source: Messari

Market highlights

Layer 1

ATOM 2.0 focused on liquid staking while lowering issuance to a constant 300,000 per month after 36 months, as well as implementing an Interchain Scheduler & Allocator that generates and distributes income for new chains and collaboration.
Delphi Digital would dedicate DeFi resources to creating the Cosmos ecosystem (ATOM) following a reevaluation of chains, teams, and choices following the demise of LUNA.
NEAR Foundation established a $100 million innovation fund and a new initiative lab.
BNB launched zk scaling solution zkBNB and converts stables to BUSD

Layer 2: There was no significant progress this month

DeFi

INJ – at Cosmoverse, INJ introduced "Project X," which incorporated AMMS, strategic vaults for market making/yield, and a native launchpad.
HXRO, a SOL-based DeFi platform, had launched weekly, monthly, and quarterly derivatives for BTC, with ETH and SOL support coming shortly.
LINK – Staking is set to launch in December, along with the SCALE and BUILD projects, which will result in LINK obtaining native tokens of other protocols in return for data feeds and other Chainlink products. LsETH appeared as an institutional liquid staking token created by Liquid Collective and supported by Coinbase and Kraken.
COMP introduces cryptocurrency-backed loans for institutional clients.
Frax Finance (FXS) has launched the Fraxlend local borrowing and lending market.
Barnbridge (BOND) introduces v2 with an emphasis on long-term fixed interest in DeFi.

NFT

OpenRarity, a new rarity service developed by IcyTools, OS, and Proof, was available.
OpenSea introduced on-site minting and supports Arbitrum and Optimism NFTs.
Starbucks revealed new NFT loyalty incentive programs.
Doodles, an NFT collection, raised $54 million at a valuation of $704 million.
Epic Games made accessible in its marketplace Mythical Games' Blankos Block Party, its first NFT-powered blockchain gaming product.

Kanpai Pandas witnessed high demand five months after their release.
Moonbirds announced a Mythics collection and a $50 million fundraising round.
RENGA led the volume rankings and continues to rise.
Pack Drop V was released concurrently as the game beta appeared to be approaching.
Fortunata World Pass made Dungeons & Dragons available for free.
Azra Games' The Hopeful followed the free-to-play game trend.
Tessera Nounlets generated generative fractionalized Nouns.
PoSers claim the distinction of being the first on-chain NFT post-merge.

Fundraising

Pantera Capital was trying to raise $1.25 billion for its second cryptocurrency fund.
Mysten Labs, a new L1 founded by ex-Meta personnel, raised $300 million at a valuation of $2 billion.
Spice VC plans to close a second crypto venture fund with a $250 million objective in the fourth quarter.
C Ventures, a Hong Kong venture capital firm, was raising $200 million for a new cryptocurrency fund.
North Island Ventures announced the establishment of their second cryptocurrency fund, which will invest $125 million.
DeFiance Capital raised $100 million for liquid token investments.
Whampoa Group, located in Singapore, intended to raise $50 million for a crypto hedge fund and invest $100 million in crypto ventures.
Strike, a BTC Lightning Network-focused payments company, got $80 million in series B funding.
Voyager, a newly insolvent crypto lender, sold assets to FTX for $1.4 billion.

Quarter 4 Prediction

The 4th quarter is expected to deliver fresher narratives to the market. Here is the list of the possible game-changers:

Appchain is likely to be the next narrative for the crypto market. Fuel VM, Celestial, Eclipse, SOL VMs, Cosmos appchains, Scroll, MATIC, SYN, OP, Arbi, zkSync, StarkWare, Nitro Labs are included in this category.
Chainlink may gain attention again when staking goes live, as well as monitoring early-stage tokens acquired (if feasible) using the newly announced BUILD & SCALE processes.
zkSync's mainnet 2.0 launch is scheduled for October 31st, which might elicit a response from StarkWare community.
Arbitrum TVL, users, and transactions continue to outperform the token which can lead to Arbitrum Autumn in the 4th quarter when the official token comes out.

These narratives can lead to short-term rallies for the market, however, the bigger picture still depends a lot on macroeconomic conditions. The long-term prospect is predicted to get better only when the FED starts to pivot.

Disclaimer:
This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.

Crypto Market Report: Quarter 3 - time for builders