Bitcoin (BTC), the world's largest cryptocurrency by market capitalization, saw a sharp drop to $25,402 on Thursday. The cryptocurrency stabilized later in the New York trading session, but is still down 20% over the past week.
Wild price swings have been the norm in recent months, leaving many alternative cryptocurrencies (altcoins) vulnerable to extreme selling pressure. In down markets, altcoins fall more than bitcoin due to their higher risk profile.
For example, Solana's SOL token has fallen 46% in the past week, compared to a 30% drop in Ether (ETH) over the same period. And BTC has fallen less than several alts over the past 24 hours, indicating a lower risk appetite among crypto traders.
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Meanwhile, the price of Terra's blockchain token LUNA plunged below 2 cents on Thursday. The sharp price movement left the network vulnerable to governance attacks that triggered a brief shutdown of the blockchain, meaning no transactions could be processed using the algorithmic stablecoin UST, LUNA or Terra's other cryptocurrencies.
"The bigger risk is further market panic caused by the macroeconomic environment and exacerbated by LUNA-related risk that could cause BTC and ETH to lose support," Sean Farrell, vice president of digital asset strategy at FundStrat, wrote in an email.
Farrell explained that FundStrat is not yet ready to declare a bottom in bitcoin due to macroeconomic risks and concerns over LUNA and UST.
"There could be significant negative implications for cryptocurrencies and digital finance if investors lose confidence in stablecoins," Fitch Ratings wrote in a report Thursday. The firm expects calls for stablecoin regulation to increase in the future, especially as many regulated financial firms have increased their exposure to digital assets (including decentralized finance) in recent months.
Latest prices
●Bitcoin (BTC): $28,635, down -2.34%.
●Ether (ETH): $1,945, -7.89%
●S&P 500 daily close: $3.930, -0.12%
●Gold: $1,824 per troy ounce, -1.57%
●Ten-year Treasury yield daily close: 2.82%.
Bitcoin, ether, and gold prices are determined at approximately 4 p.m. New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information on the CoinDesk indices can be found at coindesk.com/indices.
Bitcoin dominance on the rise
The chart below shows a short-term breakout in the Bitcoin dominance ratio, which is the market capitalization of BTC relative to total crypto market capitalization. The ratio usually increases in down markets as BTC experiences less selling pressure compared to smaller tokens.
A value around 50% of the dominance ratio could be a sign of a prolonged low-risk environment. For now, market conditions remain neutral as alts have consistently risen in favor over the past year. This suggests that traders are still finding short-term opportunities to add risk, albeit with less conviction compared to last year's bull market.
Ether is down 11% in the last 24 hours, while BTC is down 4% in the same period. The underperformance of ETH compared to BTC is a typical sign of risk mitigation.
The chart below shows a decline in the ETH/BTC price ratio below its 40-week moving average. The ratio could remain under pressure, especially if cryptocurrencies and equities do not stabilize in the coming weeks.
Some analysts expect downside risk based on historical trading data.
For example, according to Nautilus Capital, BTC is prone to short-term weakness after a quick three-day decline of more than 12.5%. The firm pointed to nine similar price declines in BTC over the past five years - a small sample size, but one that shows volatility is likely to persist.
Altcoin Review
- Terra restarts blockchain after brief shutdown: The Terra blockchain was restarted at around 1:45 p.m. Thursday. ET, after validators briefly halted the network to implement a patch to prevent new players from betting on it, after the Luna token (LUNA) fell below 2 cents earlier in the day. Terraform said the price of LUNA had fallen too low to "prevent governance attacks," citing LUNA inflation as a factor. Read more here.
- Terra Proposes Token Burn: Terra believes that reducing UST in circulation while increasing available LUNA is the easiest way to tie UST back to the dollar. "The main obstacle is driving the bad debt out of UST circulation fast enough for the system to restore the health of on-chain spreads," Terra said in a tweet. Read more here.
- Anchor could lower yields: Contributors to Terra-based decentralized financial protocol (DeFi) Anchor have proposed lowering TerraUSD (UST) interest rates to an average of 4% from the current 19.5%, as the broader Terra ecosystem looks for measures to protect UST's peg to the U.S. dollar. "Reduce the minimum interest rate to 3.5% and the maximum deposit rate to 5.5% with a target interest rate of 4%," the current proposal states. Read more here.
- PancakeSwap to reduce CAKE supply and increase farming rewards: Decentralized finance (DeFi) app PancakeSwap has released a governance proposal outlining a roadmap for its native token CAKE. The proposal, which passed with a 98.8% majority of 11 million votes, proposes to impose a 750 million supply cap on the CAKE token. CAKE currently has a circulating offer of 295 million. The maximum offer is expected to circulate within the next three to four years. Read more here.
Insight
- Listen 🎧: The CoinDesk Markets Daily podcast takes a look at where the collapse of Terra's UST stablecoin might fit into the story of self-deception.
- The blockchain stock would shine if it weren't associated with bitcoin, Mizuho says: The company's fundamentals are improving, the investment bank says.
- Investor concerns about Galaxy Digital's LUNA exposure are overblown, BTIG says: Galaxy Digital's stock plunged more than 40% this week, but a BTIG analyst says LUNA-related concerns are unwarranted.
- Brazil's largest brokerage, XP, will launch a crypto trading feature: The platform is based on Nasdaq trading technology and will allow users to buy bitcoin and ether.
- Global crypto regulator coming soon, says top official: A joint body to coordinate efforts to regulate cryptocurrencies on a global scale could become a reality next year, according to IOSCO Chairman Ashley Alder.
- Australian crypto ETF listings start with low volumes amid crypto correction: investors opted for a cautious approach during heavy volatility on the opening day of three crypto funds.
- Chainalysis raises $170 million at $8.6 billion valuation: The crypto detective company says its tools monitor $1 trillion worth of transactions each month.
- Why one advisor is putting the brakes on cryptocurrencies: Crypto has gained a lot of acceptance and trust over the past two years, but some advisors are still holding back.
Other markets.
Most digital assets in the CoinDesk 20 ended the day down.
Biggest gains
| Asset | Ticker | Returns | DACS sector |
|---|---|---|---|
| Bitcoin Cash | BCH | +0.5% | Currency |
| Polkadot | DOT | +0.2% | Smart contracts platform |
Biggest losers
| Asset | Ticker | Earnings | DACS Sector |
|---|---|---|---|
| EOS | EOS | -11.2% | Smart contracts platform |
| Cosmos | ATOM | -10.3% | Platform for smart contracts |
| Polygon | MATIC | -8.5% | Smart contract platform |
Sector classifications are provided through the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.