Monday, 16 May 2022

Market Summary

Market Summary 16 May 2022

Bitcoin Price: US$ 31,328.89 (+4.13%)
Ethereum Price: US$ 2,145.29 (+4.32%)

 

Crypto Hell Week

  • Weeks like this feel like an eternity in crypto given all that’s happened over the last several days. The massive unwind of Terra’s UST peg, and the collapse of LUNA’s value, has exacerbated bearish sentiment and downward pressure on crypto more broadly. In general, macro headwinds have taken hold of this market and show little signs of lightening up, at least until incoming inflation prints weaken considerably. Equities continue to get pummeled with the Nasdaq 100 rapidly approaching its largest drawdown from a 52-week high since March 2020 (which was the largest drawdown since the GFC).
  • The DXY’s 14-month RSI has crossed above 70 for the first time since its late 2014-2016 run up. Similar overbought readings over the last four decades led to a stronger dollar ~78% of the time over the following 12 months (11/14 instances). The DXY saw small pullbacks in several of these prior instances, but the average gain 12 months out was ~5.7%, which would put the DXY Index just shy of 111, its highest level since 2002.
  • Assuming the correlation between the DXY and BTC remains relatively strong, this would not be welcoming news for the crypto market.
  • Zooming out, we can see that BTC is now retesting its 200-week EMA (~$26,990), which historically has served as a key area for prior price bottoms. That’s not to say BTC can’t hover below this level for some time, as we saw back in 2015 and more recently in late 2018/early 2019, but it does imply that most of the drawdown is likely behind us.
  • But just because BTC has experienced a big drawdown doesn’t mean an immediate reversal is imminent. Looking back at historical instances where BTC’s price dropped more than 55% after putting in a new ATH, its average price performance over the following six months was relatively muted at best.
  • An interesting observation is that there has been lack of excess at the extreme end of this price move. In other words, instead of very aggressive forced selling resulting in liquidation cascades and ‘candle wicks’, we are seeing measured selling and signs of Bitcoin being accepted at these lower prices. This can be visualized by the high volume node forming below the established 2022 price range.
  • Generally speaking, funding rates remain relatively neutral, indicating a lack of clear market appetite or bias. This is unsurprising given the backdrop that has been laid before us. Open interest has started to decrease, but we have yet to see any significant contraction in open interest, at least relative to previous market drawdowns.
  • The last several weeks have been incredibly difficult for many, but this week was far worse than most. Market conditions continue to deteriorate, taking investor sentiment down with it, and the short-term outlook is as murky as ever. Early signs of capitulation are starting to bleed through, but we can’t say we’re nearing the point of max pain just yet. It’s weeks like this where we have to remind ourselves that sometimes taking a breather is the best thing for us. Inaction is, itself, an actionable decision, and one that’s spared many from slicing their hands on falling knives. Crypto isn’t going anywhere, anytime soon.

 

Binance CEO CZ to support Terra community but expects more transparency

  • Changpeng “CZ” Zhao, the CEO of crypto exchange Binance, recently questioned the idea of hard forking the Terra blockchain as a means to revive the once-thriving LUNA and UST ecosystems. Following up on the same, CZ revealed his perspective on the appropriate course of action for falling projects across the crypto community.
  • “This won’t work,” said CZ while dismissing the validators’ idea of a hard forking to TERRA2, which would involve providing a new version of LUNA to all holders based on a snapshot of the holdings before the market collapsed. CZ suggested:
  • “Reducing supply should be done via burn, not fork at an old date, and abandon everyone who tried to rescue the coin. I don’t own any LUNA or UST either. Just commenting.”
  • Instead, he suggested that the Terra community should first use its Bitcoin (BTC) reserves to buy back UST to revive its pegging.
  • Pointing out the potential issues with forking Terra, CZ said that “Minting, forking, don’t create value.” However, he recommended buying back and burning as some of the ideal means to revive the token’s market value. While showing support for the Terra community, CZ highlighted the need for “more transparency from them. Much more!,” which includes details about specific on-chain transactions (transaction ids) of all the funds:
  • “Failures can/will happen. But when they do, transparency, speedy communication and owning responsibility to the community is extremely important.”

 

The meaningful shift from Bitcoin maximalism to Bitcoin realism

  • There was a time when all cryptocurrencies traded against Bitcoin (BTC). Speculators ventured into other coins when they saw assuring tokenomics or promising hype, but Bitcoin was their settlement coin of choice.
  • Things have changed. Stablecoins now constitute a critical $150 billion pillar in the cryptocurrency market. Perpetual futures over-amplify market sentiment and, more often than not, dominate price action. Much more capital, including from institutional funds, has come into the market lately with only a moderate impact on Bitcoin’s price. So, some former bulls now dismiss Bitcoin as boring.
  • From a price perspective, Bitcoin is only boring for those who crave the roller coaster rush of speculative trading. As that interest looks elsewhere, Bitcoin is growing up and that in itself can unlock more growth.
  • A Bitcoin maximalist typically wants to own enough Bitcoin to do well for themselves across time and space. They probably also want to see a fair and more just economy — hence their support for Bitcoin in the first place. A maximalist should also agree that it’s better to see billions of people holding a little Bitcoin than a few million holding all of it.

 

UK Court recognizes NFTs as ‘private property’ — What now?

  • At the beginning of May, the British Web3 community celebrated an important legal precedent — the High Court of Justice in London, the closest analog to the United States Supreme Court, has ruled that nonfungible tokens (NFT) represent “private property.” There is a caveat, though: In the court’s ruling, this private property status does not extend to the actual underlying content that NFT represents. Cointelegraph reached out to legal experts to understand what this decision could possibly change in the British legal landscape. 
  • “The underlying property or asset that the NFT represents, be that artwork or any other copyrightable material, are still governed in the U.K. by the same copyright laws as in the United States,” Tom Graham, U.K.-based CEO and co-founder of Web3 company Metaphysic.ai, explained to Cointelegraph. “This decision doesn’t help clarify that distinction.”
  • But for Graham, the ruling still set an “interesting precedent,” as the court had issued an injunctive order to OpenSea. This is significant in terms of courts stepping in and providing injunctive relief where NFTs have been stolen. He added:
  • “It is now unambiguous that NFTs are governed by the same property laws in the U.K. that govern all other property. It sets a great precedent for people investing in NFTs that the court system, at least in the U.K., will protect their property rights.”

 

Crypto.com unblocks users, reverses glitched LUNA trades that made 30-40x

  • Crypto.com was one of the few crypto exchanges to keep Terra (LUNA) trades open as Terra’s death spiral saw an unrecoverable price crash of LUNA and stablecoin TerraUSD (UST). However, a technical glitch on Crypto.com’s mobile application allowed users to get away with a 30-40x profit on LUNA trades momentarily.
  • On Friday, Crypto.com abruptly barred users from trading after an internal tool detected the system quoting incorrect prices for LUNA due to some error. Just when Crypto Twitter started raising concerns about trade reversals on the exchange, Kris Marszalek, CEO of Crypto.com, revealed details about a glitch that allowed users to make away with massive profits.

 

Bitcoin network fortifies as mining difficulty records ATH of 31.251T

  • Further distancing itself from any concerns of planned attacks on the blockchain, the Bitcoin network established a new mining difficulty all-time high of 31.251 trillion — exceeding the 30-trillion mark for the first time in history.
  • The creator of Bitcoin (BTC), Satoshi Nakamoto, warranted the security of the BTC network through a decentralized network of BTC miners who are tasked with confirming the legitimacy of transactions and minting new blocks.
  • Given the extensive community support — from developers to hodlers to traders to miners — that spans over 13 years, the BTC network was witness to a historic 10-month-long rally as it achieved mining difficulty of 31.251 trillion.
  • Despite the crypto community’s concerns related to the ongoing targeted attacks and an active bear market, BTC continues to position itself as the most resilient blockchain network. 

 

Canadian Bitcoin ETF adds 6.9K BTC in one day as GBTC discount hits record low

  • Amid ongoing market volatility this week, GBTC has seen its fledgling recovery fall flat on its face — for the time being.
  • The so-called GBTC premium, long in negative territory and thus a discount in practice, has now reached its lowest ever.
  • As of May 13, the discount was 30.6%, meaning that shares in GBTC traded at almost one third below the Bitcoin spot price (referred to as net asset value, or NAV).
  • The figures mark a distinct turnaround for the premium, which in mid-April had managed to rise to a 21% discount.
  • Overall, however, GBTC has long traded at a discount amid ongoing attempts by Grayscale to convert it to an exchange-traded fund (ETF).
  • Over the border in Canada, the world’s first Bitcoin spot ETF has conversely benefited from the week’s trading conditions.
  • The Purpose Bitcoin ETF added 6,903 BTC in a single day on May 12, marking its biggest single-day buy-in in its history.
  • Purpose now has 41,620 BTC under management, beating its previous 36,322 BTC high set in March this year.

 

No rescue for Terra: Swiss asset manager denies $3B LUNA/UST bail-out talks

  • GAM Investments has quashed fake news reports that surfaced on Friday that claimed the Swiss asset manager would invest some $3 billion to aid in the recovery of the Terra ecosystem, including LUNA and the TerraUSD (UST) stablecoin. 
  • An announcement published on Thursday claimed that the firm was engaging in talks with Terraform Labs to assist in recovery attempts after Terra’s algorithmic stablecoin, UST, lost its U.S. dollar peg, causing a cataclysmic crash of the acclaimed blockchain protocol, which had become a darling of the decentralized finance (DeFi) space.
  • Cointelegraph has confirmed with GAM Investments that the press release was fabricated, even including fake quotes from GAM CEO Peter Sanderson. GAM’s head of communications and investor relations, Charles Naylor, categorically labeled the release as fake news.

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