Market decline

The decline of the crypto market highlights its unpredictability; Bitcoin holds at $31,000

Most signs are pointing down, but it’s hard to predict how prices will move in the days and weeks ahead; major cryptos are having a mixed day.

Hello. Here is what happens:

Prices: Bitcoin holds; other cryptos are mixed.

Knowledge: Crypto prices are unpredictable.

Technician’s opinion: The rise in BTC volume is a first sign of capitulation, but the upside remains limited.

Prices

bitcoin (BTC): $31,083 +1.4%

Ether (ETH): $2,353 +3.4%

The biggest winners

Asset Teleprinter Return DACS sector
Polygon MATIC +7.6% Smart contract platform
Solana FLOOR +4.0% Smart contract platform
Spotted POINT +3.9% Smart contract platform

The biggest losers

Asset Teleprinter Return DACS sector
Algorand ALGO −0.9% Smart contract platform
EOS EOS −0.9% Smart contract platform
filecoin THREAD −0.3% Computing

Bitcoin holds around $31,000

Bitcoin and Ether shook, but Terra’s LUNA shook in Tuesday’s trading.

The native ecosystem token Terra recently fell more than 53% in the past 24 hours after the organization’s stablecoin UST continued to fall well below its dollar peg, and amid a report that the Luna Foundation Guard (LFG), the nonprofit created to support the Terra Network, was aiming to raise $1 billion to restore that parity. The drop followed a 30% decline on Monday. UST was recently in the red at over 6%.

Meanwhile, bitcoin’s roughly 1.4% rise represented an improvement from the previous day, when the largest cryptocurrency by market capitalization plunged below $30,000 in early trading on Tuesday – the first time since July 20, it had fallen below this threshold. Bitcoin was recently trading just above $31,000.

Ether, the second-largest crypto by market capitalization, outperformed over the same period, rising around 3.5%, and changing hands at around $2,350. Other cryptos were mixed for much of the day with AXS recently down over 6%, but CRO and even coin SHIB in the green over 8% and 10%, respectively.

The crypto industry has continued to feel the shockwaves of the wider geopolitical and economic unrest. Crypto exchange giant Coinbase lack its first-quarter revenue estimates amid a 44% drop in trading revenue from the fourth quarter. Miner Riot also missed analyst forecasts for its first three months of 2022.

Cryptos less tumultuous Tuesday followed stock indices, which were mixed with the tech-heavy Nasdaq up about a percentage point and the Dow Jones Industrial Average down slightly. Investors will be watching the widely anticipated April Consumer Price Index report to show inflation has slowed but prices have remained high.

In emailed comments, Jaime Baeza, CEO of Miami-based crypto hedge fund ANB Investments, noted pressure from macro events, including inflation and a tightening of central bank monetary policy on equities. and digital assets, but attributed bitcoin’s most recent decline “to the de-anchoring of the UST.” Baeza wrote that LFG’s decision to defend the peg by selling bitcoin reserves “accelerated the broader crypto market‘s sell-off as panic spread and a black swan systemic risk event drew nearer.” .

In an interview on CoinDesk TV’s First Mover program, Joseph Kelly, CEO of bitcoin financial services firm Unchained Capital, called the detachment a “scary headline.”

But he added optimistically, “It’s one of those things that you can hold unlike bitcoin as a more solid and explainable asset that’s not too promising and tries to do things like hold a peg to the dollar. It’s a way for Bitcoin to continue to shine in the long term.”

Markets

S&P 500: 4,001 +0.2%

DJIA: 32,160 -0.2%

Nasdaq: 11,737 +0.9%

Gold: $1,839 -0.8%

Knowledge

Predicting Crypto Markets is a Challenge

The last week in crypto has shown immense volatility, which few to no assets can match. Markets lost over $1 billion as Terra’s UST stablecoin was thrown off its 1:1 dollar peg and crypto majors crashed, leading to widespread selloffs.

There’s a lot to discover about the collapse of Terra’s UST. Probably the least understood part was the Luna Foundation Guard’s decision to lend almost all of their reserves to market makers to support the peg of $1 UST by specifically making trades marked at $1. Somehow there is theoretical merit to this, but the market saw LFG reserves at rock bottom levels and pushed to liquidate as much as it could.

(Glass node)

The timing of the US Federal Reserve stablecoin report could not have been better.

“These vulnerabilities may be exacerbated by a lack of transparency regarding the risk and liquidity of assets backing stablecoins,” the report read, with Nellie Liang, Treasury Department undersecretary for domestic finance, adding during of an event, “They have the potential to generate destabilizing runs if the value of the assets backing the stablecoin drop sharply.

IIn many ways, stablecoins were one of the post-March 2020 legacies. They were meant to create real utility and acceptance for the asset class and reflected growing institutional interest. After all, before March 2020, stablecoins had a market capitalization of just over $5 billion. Now that figure is closer to $175 billion.

Some might think that this triple whammy of the UST de-pegging (and its likely failure), a violent drop in crypto prices and a condemnation of stablecoins by the Fed would put the asset class in a precarious position. It would be a test of faith and belief.

Of course, some data suggests this very thing. Bitcoin is flowing into exchanges at a rate not seen since November 2017.

Just over 50,000 bitcoins were traded on Monday. Traditionally, the influx of currencies means that traders are preparing to sell their assets, which is seen as a bearish signal for prices. But it also means that traders could prepare to play the derivatives market. In this scenario, they would open long positions to accelerate their gains as the crypto price recovers.

Consider what happened in November 2017. As data from Glassnode shows, there was a lot of bitcoin on exchanges. This was the peak of the initial coin supply bubble and the price of bitcoin continued to appreciate – despite all that bitcoin on the exchanges. Yes, there was a derivatives market, like BitMEX was launched in 2014, but at the time it was still relatively unsophisticated and wouldn’t reach maturity until 2018.

The thing is, this asset class, in the grand scheme of things, is still in its infancy. There are many signals we can use to help us navigate the market, but ultimately the unpredictability of crypto means these indicators mean predictions and are not definitive.

Technician’s opinion

Bitcoin’s daily chart shows support/resistance, with volume at the bottom. (Damanick Dantes/CoinDesk, TradingView)

Bitcoin (BTC) stabilized around the $30,000 support level, which may keep short-term buyers active. Still, the upside appears to be limited, initially towards the next resistance level at $35,000.

BTC is up 4% in the last 24 hours. That’s down 16% over the past week. Several alternative cryptos (altcoins) have outperformed BTC over the past 24 hours, suggesting greater risk appetite among short-term traders.

Typically, BTC drops less than altcoins during market rallies due to its lower risk profile compared to smaller tokens.

The Relative Strength Index (RSI) on the daily chart is rising from extreme oversold levels, which could support a brief relief rally similar to what happened in late January. This time, however, negative momentum signals have increased the risk of further breakdowns on the chart.

Additionally, the 14-day moving average for volume (based on Coinbase exchange data provided by TradingView) has increased, which could be a first sign of capitulation. Still, current volume levels are lower than in June of last year, when BTC settled at around $30,000.

Important events

09:30 HKT/SGT (01:30 UTC): China Consumer Price Index (Month/Year April)

09:30 HKT/SGT (01:30 UTC): China Producer Price Index (Annual/April)

3 p.m. HKT/SGT (7 a.m. UTC): Japan Economic Index (March preliminary)