Crypto markets were deep red on Wednesday as stablecoin woes kept some traders on edge.
Terra's LUNA token crashed for the third day in a row, falling as much as 96% in the last 24 hours. LUNA was intended as a buffer against volatility for stablecoin TerraUSD (UST), but it has succumbed to extreme selling pressure. The Luna Foundation Guard shifted all of its reserves to bitcoin exchanges on Wednesday to defend the $1-for-$1 peg of the UST stablecoin.
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In addition, according to a document seen by CoinDesk, the European Commission is considering a wholesale ban on stablecoins, which are now widely used in place of fiat currencies.
Bitcoin (BTC) fell as much as 6% in the last 24 hours, compared to a 9% drop in Ether (ETH) and a 30% drop in Solana's SOL token. Bitcoin is outperforming most alternative cryptocurrencies (altcoins), which typically occurs in a down market due to its lower risk profile compared to smaller tokens.
Latest prices
●Bitcoin (BTC): $29,155, down 6.40%.
●Ether (ETH): $2,104, -10.31%
●S&P 500 daily close: $3.935, -1.65%
●Gold: $1,853 per troy ounce, +0.71%
●Ten-year Treasury yield daily close: 2.92%.
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 about CoinDesk indices can be found at coindesk.com/indices.
Bitcoin's trading volume has increased in recent days, although not as much as in previous spikes. That could be the first sign of capitulation as BTC stabilizes at around $30,000.
"The increase in volume is particularly interesting considering that spot volume has been shrinking over the past month, with April seeing the lowest bitcoin spot volume since last summer," Arcane Research wrote in a report earlier this week.
"The recent spike in volatility seems to have woken up traders. "
Volatility
ReturnsBitcoin's
first-month
implied
volatility
also rose to its highest level since March. Traders expect larger price swings in the short term, although volatility spikes are usually short-lived.
QCP Capital, a Singapore-based crypto trading firm, saw strong demand for puts at its options trading desk this week, widening the risk reversal on BTC and ETH (calls minus puts) from -8% to -15%. QCP expects more volatility in the short term.
The chart below shows an increase in the put/call ratio on BTC, suggesting bearish sentiment among options traders. The ratio is at its highest level since February, when the price rose.
In addition, open interest in the perpetual swaps market on bitcoin rose to a new high on Tuesday. This indicates a rise in leverage among derivatives traders, which usually leads to sharp price swings - a relief rally or a collapse.
However, the cost of funding long positions (funding rate) remains neutral, which means that some traders are still willing to increase their exposure to BTC despite the current stress. Typically, funding rates collapse when sell-offs occur.
Altcoin Review
- Terra to the ground: The Terra blockchain's own token, LUNA, plunged to a value of just $1, losing 96% of its value in one day. LUNA is meant to cushion price shocks from the blockchain's algorithmic stablecoin, TerraUSD (UST), but UST's failure to regain its $1 token rendered LUNA virtually worthless. Some traders were betting that LUNA would recover in the futures market, but after prices continued to plummet, liquidations totaled $106 million. Read more here
- Contagion spreads to algos: UST crisis puts massive pressure on other algorithmic stablecoins. Neutrino USD (USDN), the stablecoin of the decentralized financial protocol Waves, appears to be the first to wobble: USDN fell from its $1 standard to below 80 cents on some exchanges, while the protocol's native token, WAVES, fell 26% in one day. Delphi Digital reported earlier this week that stablecoins FRAX, FEI and USDN face the same threat as UST due to their similar design and vulnerabilities. Read more here
- Stepn up: Stepn, a "move-to-earn" app on the Solana (SOL) blockchain that allows users to earn cryptocurrency rewards for walking or jogging, is gaining traction in digital asset markets. The fitness app has grown to more than 300,000 daily active users in just a few months, while its native token GMT is trading at 17 times its launch price in March. "It actually has value in the long run," said Will McEvoy of Fundstrat. Read more here
Relevant Insights
- Listen 🎧: The CoinDesk Markets Daily podcast takes an in-depth look at the Fed and recent market volatility.
- UST's Do Kwon Was Behind Earlier Failed Stablecoin, Ex-Terra Colleges Say: Basis Cash, an algorithmic stablecoin project founded by the anonymous "Rick" and "Morty" in 2020, was actually the work of Terraform Labs employees.
- Coinbase shares plunge as weak results urge near-term caution: Wall Street analysts cut price targets for the crypto exchange after its first-quarter earnings report.
- Germany Releases First Nationwide Tax Guide for Crypto: The Finance Ministry letter addresses the income tax treatment of mining, staking, lending, hard forks and airdrops.
- Global financial stability watchdog FSB says it may write crypto rulebook: The Financial Stability Board joins calls for coordinated international action to regulate the industry.
- Nubank, Brazil's Largest Digital Bank, Launches Bitcoin and Ether Trading: The trading and custody service is provided by blockchain infrastructure company Paxos.
- 5 U.S. states issue emergency orders to shut down Metaverse casinos with suspected Russian ties: A cease-and-desist letter issued Wednesday by several states calls Flamingo Casino Club a "simple high-tech scam."
Other MarketsMostdigital
assets in the CoinDesk 20 ended the day
down.Biggest winnersThere
are no winners in CoinDesk 20 today.Biggest losers
| Assets | Ticker | Earnings | DACS Sector |
|---|---|---|---|
| Internet Computer | ICP | -30.1% | Data Processing |
| Solana | SOL | -28.3% | Platform for smart contracts |
| Polygon | MATIC | -27.4% | Smart contracts platform |
are provided through the Digital Asset Classification Standard (DACS), which was 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.