Thursday, 12 May 2022

Market Summary

Market Summary 12 May 2022

Bitcoin Price: US$ 29,104.01 (-6.17%)
Ethereum Price: US$ 2,084.99 (-10.98%)


BTC Pain, UST Turbulence, & Intro to Token Sinks

  • Note: Glassnode separates BTC holders into two classifications. Short-Term Holders (STHs) of BTC have held BTC in their wallets for less than 155 days. Long-Term Holders (LTHs) have held BTC in their wallets for more than 155 days.
  • BTC has extended its move downwards to retest 30k as macro uncertainties continue to exert pressure on prices. BTC holders are beginning to feel the pain as combined STH and LTH losses are at 44%, which hasn’t been recorded since 2020.
  • LTHs continue to accumulate BTC, absorbing 13.56M of supply–the highest it has ever been despite 31% of LTHs experiencing losses.
  • The price of BTC also fell below $30.7k, which was the average price of MicroStrategy’s BTC purchase. MicroStrategy says it will only be at risk of liquidation if BTC is at $3,562.
  • Souring sentiment and worsening macro headwinds have exacerbated the selloff in equity markets, with the S&P 500 now trading at its lowest level in over a year. Analysts are slashing price targets at their fastest pace in two years as many past high-flying growth stocks find themselves 30-40% off their highs. Gone is the supportive backdrop of the 2010s that propelled asset prices to new heights, instead replaced by surging consumer costs and deteriorating financial conditions.
  • Consumers and investors alike are facing the highest CPI prints in 40 years. The proliferation of higher consumer prices has made its way into everyday conversation, which has narrowed the Fed’s fight to just one enemy above all: inflation. And their latest rhetoric implies little will stand in their way to stop it. Early rate hikes have not yet had an effect on inflation, though they will once demand really starts to slow. The narrative of a vibrant and growing economy still exists – at least to some degree – if you look at labor shortages alone. In reality, rumors of layoffs have started to circulate while corporate earnings have started to disappoint. Asset prices are starting to come to terms with this new reality. Liquidity concerns still exist, which is another risk the Fed’s balance sheet roll off won’t help with.
  • The last several weeks have seen these shifts manifest themselves in equity prices. Many tech stocks are down 70%+, with the S&P 500 Index off 18% from its peak. The SPX has printed fresh lows on the year as investors come to terms with this unwind. The next obvious macro structure support is likely 3250-3400 should SPX lose 4000; another leg lower to the top of that range would imply a ~30% drawdown from its early January peak.
  • With an unflattering macro and crypto backdrop, UST started fleeing Anchor on May 7th shedding nearly $2.3B in deposits within 48 hours. With the reasonable assumption that UST leaving Anchor is entirely exiting the Terra ecosystem this is quite a lot of sell pressure to absorb. These events lead to the UST peg beginning to break down, hovering around 99 cents.
  • On May 9th the situation accelerated rapidly with an additional ~$5B worth of UST leaving Anchor. UST looking to exit the system has 3 main options:
  • Use the native LUNA burn/mint mechanism to redeem 1 UST for $1 worth of LUNA (more on this later).
  • Using decentralized exchange liquidity the largest source being Curve which had ~$550M worth of 3CRV to be used as exit liquidity.
  • Selling UST on centralized exchanges with the main markets being Binance and FTX.
  • With ~$550M worth of liquidity on Curve, LFG having ~$2B worth of reserves and the native mint/burn mechanism only being able to handle ~$300M a day in redemptions this still leaves billions of UST that potentially wanted to exit the system unaccounted for. This caused a pretty drastic break in the UST peg wicking down to as low as 61 cents on Binance.
  • The UST peg breakdown caused a massive sell-off in LUNA from both speculators worried about the entire system and structural selling from LUNA’s natural mint/burn mechanism.


Not bothered: Miners ‘not impacted by volatility’ in Bitcoin market

  • Despite steadily declining prices of Bitcoin and turmoil on the markets today, some of the largest mining companies are unfazed and insist their operations will not be affected by negative price volatility.
  • Some even see it as an opportunity to gain market share as smaller competitors collapse.
  • Bitcoin (BTC) prices have been on a steady decline all year up to the past 24 hours, when the crash accelerated to reach the lowest point since December 2020. However, miners have not been deterred amid that tremendous pressure. Some may even have more fervor for mining if the downtrend in Bitcoin continues through 2022.
  • Each of three different mining operations — two large public companies and one private mining company — that Cointelegraph reached out to shared cool emotions about the prospect of a bear market. They believe it will have little to no effect on their business plans.


Terra contagion leads to 80%+ decline in DeFi protocols associated with UST

  • The knock-on effect of the collapse of Terra (LUNA) and its TerraUSD (UST) stablecoin have spread wide across the cryptocurrency market on May 11 as projects with any kind of association with the DeFi ecosystem have seen their prices hammered. 
  • The forced selling of the Bitcoin (BTC) holdings backing a portion of UST also influenced BTC’s current drop to $29,000 and analysts fear that DeFi platforms that have liquidity pools primarily comprised of UST and LUNA will collapse. 
  • Projects with the direst of outlooks are those that are hosted on the Terra protocol including Anchor Protocol (ANC), Astroport (ASTRO) and Mars Protocol (MARS).
  • Assets in the Cosmos ecosystem were also hard hit by UST’s collapse. ATOM and other tokens like Mirror Protocol (MIR), Osmosis (OSMO) and Kava that utilize the Interblockchain Communication Protocol (IBC) corrected sharply due to their integration with Terra.
  • Maker (MKR) is the one bright spot to emerge in trading on May 11 as crypto traders now find themselves embracing Dai (DAI) as the “best” decentralized stablecoin option in the market.


Why did Terra LUNA and UST crash? | Find out on The Market Report

  • On this week’s special episode of “The Market Report,” Cointelegraph’s resident experts discuss the Terra ecosystem meltdown. 
  • Cryptocurrency investors never thought they’d have to ask whether TerraUSD (UST) or LUNA would reach $1 first. On Wednesday, that question became the talk of the cryptosphere as the Terra ecosystem imploded. 
  • As the algorithmic stablecoin UST lost its dollar peg, crashing to a low of around $0.30, Terraform Labs co-founder Do Kwon took to Twitter to share his rescue plan. At the same time, the value of sister token LUNA, once a top-10 crypto project by market capitalization, plunged over 98% to $0.84, according to CoinMarketCap. For reference: LUNA was trading north of $120 in early April.


LUNA meltdown sparks theories and told-you-sos from crypto community

  • No matter how hard your day is going, spare a thought for LUNA investors Wednesday. Do Kwon, CEO of Terraform Labs and 18th on Cointelegraph’s Top 100, has lost billions of dollars for their investors.
  • Do Kwon’s coins came crashing down as brainchild Terra (LUNA) sinks over 97% from highs, while the stablecoin TerraUSD (UST) fell 75% lower than its intended dollar parity.  At one point, the LUNA price tread lower than UST.
  • There are real consequences to the coins’ failures. On the TerraLuna Reddit page, the suicide hotline has been pinned; the subreddit is indeed a disturbing read as the LUNA crisis unfurls.
  • What was once considered a FUD attack on Luna has evolved into something far more conspiratorial and insidious. Among the most popular theories is an alleged George Soros-inspired “attack” on the Terra ecosystem, in which the buyer made off with over $800 million.
  • Ransu Salovaara, CEO at Likvidi, echoed the theory, explaining to Cointelegraph that “some parties picked UST’s algorithm peg as a market manipulation target and borrowed lots of Bitcoin (BTC) to execute this, what some call “Soros style,” attack on UST.”


Rising global adoption positions crypto perfectly for use in retail

  • Even though the cryptocurrency market seems to be going through a bit of a lull at the moment, there’s no denying the fact that the industry has grown from strength to strength over the last few years, especially from an adoption perspective. 
  • To this point, a recent study revealed that the number of adults in the United States using digital assets for everyday purchases will increase by 70% by the end of the year when compared to 2021, with the metric rising from 1.08 million to 3.6 million users.
  • The study’s chief author suggests that as the crypto market’s volatility continues to reduce — thanks to the growing use of stablecoins and central bank digital currencies (CBDCs) — more and more people will look at these offerings as a legitimate means of payment. In fact, by the end of 2022, the research suggests that the total population of U.S adults making use of crypto will scale up to a staggering 33.7 million.


VeChain Foundation reports $1.2B crypto treasury but spent just $4M in Q1

  • The VeChain Foundation has released its financial report for Q1 2022, showing that the project amassed an impressive $1.2 billion war chest but only spent about $4.1 million in the quarter.
  • VeChain is a layer-1 blockchain project designed to enhance supply chain management, and that supports decentralized apps (Dapp), decentralized finance (DeFi), and nonfungible tokens (NFT).
  • The Foundation’s Tuesday financial report for Q1 2022 outlines its balance sheet as of March 31and how it spent funds through the quarter. Although the treasury opened the year with $1.37 billion in assets between stablecoins, Bitcoin (BTC), Ether (ETH) and VeChain (VET), it ended the quarter with $1.2 billion. The report states that most of the losses were incurred “due to crypto market fluctuations and other VeChain Foundation outgoings.”
  • The BTC price has fallen 34% since, ETH has fallen 36% and VET has fallen 54% since December 31, 2021, when the project marked the beginning of its Q1 tracking through March 31.
  • Of the $4.1 million outlaid in the first quarter, the Foundation spent $1.8 million on ecosystem business development, which was the highest expense. That includes partnerships, custodians, wallet providers, brokers, community events and ecosystem project cooperation.
  • VeChain Foundation treasury from Q1 2022
  • Next was $1.1 million on ecosystem operations such as team costs, office space, utilities, consulting fees and external services.

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