Good morning! Here's what happened:
Prices: Bitcoin holds up; other cryptocurrencies are mixed.
Insights: crypto prices are unpredictable.
Technician's take: BTC volume surge is first sign of capitulation, but upside potential remains limited. (Why is this here?)
Prices
Bitcoin (BTC): $31,083 +1.4%
Ether (ETH): $2,353 +3.4%
Biggest gains
| Asset | Ticker | Returns | DACS Sector |
|---|---|---|---|
| Polygon | MATIC | +7.6% | Smart contracts platform |
| Solana | SOL | +4.0% | Platform for smart contracts |
| Polkadot | DOT | +3.9% | Platform for smart contracts |
Biggest losers
| Asset | Ticker | Earnings | DACS Sector |
|---|---|---|---|
| Algorand | ALGO | -0.9% | Smart contracts platform |
| EOS | EOS | -0.9% | Smart contract platform |
| Filecoin | FIL | -0.3% | Data processing |
Bitcoin holds around $31K
Bitcoin and Ether shook, but Terra's LUNA quaked in Tuesday trading.
The Terra ecosystem's native token fell more than 53% in the last 24 hours after the organization's UST stablecoin remained well below its dollar peg amid a report that the Luna Foundation Guard (LFG), the nonprofit created to support the Terra network, is aiming to raise $1 billion to restore that parity. The decline followed a 30% drop Monday. UST was last down more than 6%.
Bitcoin's gain of about 1.4% was an improvement from the previous day, when the largest cryptocurrency by market capitalization fell below $30,000 in early Tuesday trading - the first time since July 20. Bitcoin last traded just above $31,000.
Ether, the second-largest cryptocurrency by market cap, outperformed expectations during the same period, rising about 3.5% to change hands at around $2,350. Other cryptocurrencies were mixed for much of the day, with AXS recently losing more than 6%, while CRO and the meme coin SHIB gained more than 8% and 10%, respectively.
The crypto industry continued to feel the shockwaves of the broader geopolitical and economic turmoil. Crypto exchange giant Coinbase missed its first-quarter revenue estimates as trading revenue fell 44% compared to the fourth quarter. Miner Riot also missed analysts' forecasts for the first three months of 2022.
Cryptocurrencies' less turbulent Tuesday followed equity indices, which were mixed, with the tech-heavy Nasdaq rising one percentage point and the Dow Jones Industrial Average falling slightly. Investors will be watching for the April Consumer Price Index report, which is widely expected to show that inflation has slowed but prices remain high.
Jaime Baeza, CEO of Miami-based crypto hedge fund ANB Investments, pointed out in an email the pressure of macroeconomic events, including inflation and a tightening of central bank monetary policy, on equities and digital assets, but attributed Bitcoin's recent slump "to UST devaluation." Baeza wrote that the LFG's decision to defend the peg by selling bitcoin reserves "accelerated the sell-off in the broader crypto market as panic spread and a black swan systemic risk event approached."
In an interview on CoinDesk TV's First Mover program, Joseph Kelly, CEO of bitcoin financial services firm Unchained Capital, called the de-peg "a scary headline."
But he added optimistically, "It's one of those things that, unlike Bitcoin, you can look at as a more solid, explainable asset that doesn't make too many promises and tries to maintain things like the dollar peg. That's one way Bitcoin can shine in the long run."
Markets
S&P 500: 4,001 +0.2%
DJIA: 32,160 -0.2%
Nasdaq: 11,737 +0.9%
Gold: $1,839 -0.8%
Insights.
Predicting crypto markets is difficult
The past week has seen immense volatility in cryptocurrencies that few, if any, assets can keep up with. Markets lost more than $1 billion when Terra's UST stablecoin was freed from its one-for-one dollar peg and major cryptocurrencies collapsed, resulting in numerous liquidations.
There is a lot to be said about the collapse of Terra's UST. Probably the least understood part of it was the Luna Foundation Guard's decision to lend almost all of its reserves to market makers to prop up the $1 UST peg by making trades specifically marked to $1. Somewhere there are theoretical reasons for this, but the market saw LFG's reserves at critically low levels and pushed to liquidate as much as possible.
The timing of the Federal Reserve's report on stablecoins could not have been better.
"Nellie Liang, undersecretary of the Treasury, added at an event, "They have the potential to trigger destabilizing runs if the value of the assets backing the stablecoin drops abruptly.
In many ways, stablecoins were one of the post-March 2020 legacies, designed to create real value and acceptance for the asset class and reflecting growing institutional interest. After all, before March 2020, Stablecoins had a market cap of just over $5 billion. Now that number is closer to $175 billion.
Some might think that this triple whammy - the unbinding of the UST (and its likely failure), a sharp decline in crypto prices, and a Fed condemnation of stablecoins - would put the asset class in a precarious position. It would be a test of faith and belief.
Certainly, some data points to just that. Bitcoin is flowing into exchanges at a pace not seen since November 2017.
On Monday, just over 50,000 Bitcoin hit exchanges. Traditionally, the influx on exchanges means traders are preparing to sell their assets, which is seen as a bearish signal for prices. However, it also means that traders might be preparing to enter the derivatives market. In this scenario, they would open long positions to accelerate their profits as the crypto price recovers.
Consider what happened in November 2017. As Glassnode's data shows, there was plenty of Bitcoin on exchanges. It was the peak of the Initial Coin Offering bubble, and the Bitcoin price continued to rise - despite all those Bitcoins on exchanges. Yes, there was a derivatives market when BitMEX launched in 2014, but at the time it was still relatively immature and wouldn't come of age until 2018.
The point is that, by and large, this asset class is still in its infancy. There are many signals that we can use to navigate through the market, but ultimately the unpredictability of cryptocurrencies means that these indicators mean predictions and are not definitive.
Technicians' opinion
Bitcoin holds support at $30K, resistance at $35K
Bitcoin (BTC) has stabilized around the $30,000 level, which could keep short-term buyers on their toes. Still, the uptrend seems limited, initially towards the next resistance level at $35,000.
BTC is up as much as 4% in the last 24 hours. In the last week, it has fallen by 16%. Several alternative cryptocurrencies (altcoins) have outperformed BTC in the last 24 hours, suggesting greater risk appetite among short-term traders.
Typically, BTC falls less than altcoins during market rallies because it has a lower risk profile compared to smaller tokens.
The Relative Strength Index (RSI) on the daily chart is rising from extremely oversold levels, which could support a short recovery rally similar to late January. However, this time negative momentum signals have increased the chance of further dips on the chart.
In addition, the 14-day moving average of volume (based on Coinbase exchange data provided by TradingView) has increased, which could be the first sign of capitulation. Still, the current volume is lower than last June, when BTC was around $30,000.
Key Events
9:30am HKT/SGT(1:30am UTC): Chinese consumer price index (MoM/YoY April).
9:30 a.m. HKT/SGT(1:30 a.m. UTC): Chinese Producer Price Index (YoY/April)
15.00 HKT/SGT(7.00 UTC): Japanese Economic Index (March Preliminary)
CoinDesk TV
In case you missed it, here is the latest episode of "First Mover" on CoinDesk TV:
What's next for Bitcoin, broader crypto markets after sell-off, reaction to US dollar's move away from peg
"First Mover" examined the crypto markets with three industry leaders and analysts. What is the cause of the current sell-off and where do we go from here? What is the future of the UST stablecoin now that it has moved away from its dollar peg? Guests included Joseph Kelly, CEO of Unchained Capital, David Russell, Vice President, Market Intelligence at TradeStation Group, and Bennett Tomlin, co-host of "Crypto Critics' Corner."
Headlines
Bitcoin falls below $30K amid broader market selloff, hits 10-month low: The last time the largest cryptocurrency by market cap traded below $30,000 was in July 2021.
The founder of Azuki NFT admits to abandoning previous projects: The project's floor price dropped dramatically after this news.
New Fed Report Reiterates Warning on Stablecoin Risks as UST Peg Loses: The Federal Reserve's semi-annual report was released on the same day that Terra's dollar-pegged UST stablecoin fell below 85 cents.
Instagram Aims for Creative Industry with NFT Rollout: With millions of creatives and billions of users, Instagram could turn NFTs into a cash cow, the company hopes.
Longer text
Inflation will create a policy vacuum. Can Bitcoin Fill It? "Prices are rising at a time when distrust in government to fix the problem is pervasive. That leaves the door open for Bitcoin, the ultimate hedge against inflation.
Today's crypto explainer: can crypto go green? How to invest in green cryptocurrencies
Other voices: China's internet users are paying close attention to the crypto crash (TechCrunch)
Said and heard
"It's not always easy to say who will lose the most when markets crash. We, or at least I, tend to take an overly sentimental view of the economy, knowing how much people's pensions and livelihoods are tied to capital. And so "corrections" seem more personal than just the mechanics of money. After all, people make buy, sell or hold decisions often based on incomplete, conflicting or confusing information." (CoinDesk columnist Daniel Kuhn) ... "My plan is to lower everyday costs for hardworking Americans and reduce the deficit by requiring corporations and the wealthiest Americans to stop participating in price gouging and pay their fair share." (U.S. President Joe Biden) ... "He [Jack Dorsey] and I agree that permanent blocks should be extremely rare and reserved for accounts that are bots or fraud accounts." (Tesla CEO Elon Musk, quoted by the BBC)