First Mover Asia: Crypto Market Decline Underlines Its Unpredictability; Bitcoin Holds at $31K

Most signs have pointed downward, but predicting price trends in the days and weeks ahead is difficult; major cryptos have a mixed day.

AccessTimeIconMay 10, 2022 at 11:40 p.m. UTC
Updated May 11, 2022 at 2:59 p.m. UTC

Damanick was a crypto market analyst at CoinDesk where he wrote the daily Market Wrap and provided technical analysis. He is a Chartered Market Technician designation holder and member of the CMT Association. Damanick is also a portfolio strategist and does not invest in digital assets.

James Rubin is CoinDesk's U.S. news editor based on the West Coast.

Good morning. Here’s what’s happening:

Prices: Bitcoin holds; other cryptos are mixed.

Insights: Crypto prices are unpredictable.

Technician's take: BTC's volume uptick is an initial sign of capitulation, but upside remains limited.

Catch the latest episodes of CoinDesk TV for insightful interviews with crypto industry leaders and analysis. And sign up for First Mover, our daily newsletter putting the latest moves in crypto markets in context.

Prices

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

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

Biggest Gainers

Asset Ticker Returns DACS Sector
Polygon MATIC +7.6% Smart Contract Platform
Solana SOL +4.0% Smart Contract Platform
Polkadot DOT +3.9% Smart Contract Platform

Biggest Losers

Asset Ticker Returns DACS Sector
Algorand ALGO −0.9% Smart Contract Platform
EOS EOS −0.9% Smart Contract Platform
Filecoin FIL −0.3% Computing

Bitcoin holds around $31K

Bitcoin and ether trembled, but Terra's LUNA quaked in Tuesday trading.

The native token of the Terra ecosystem was recently down over 53% over the past 24 hours after the organization's UST stablecoin continued to fall well short of its dollar peg, and amid a report that the Luna Foundation Guard (LFG), the non-profit established to support the Terra network, was aiming to raise $1 billion to restore this parity. The decline followed a 30% drop on Monday. UST was recently in the red over 6%.

Meanwhile, bitcoin's roughly 1.4% upturn represented an improvement over the previous day when the largest cryptocurrency by market capitalization dove below $30,000 in early Tuesday trading – 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 cap, outperformed over the same period, rising approximately 3.5%, and was changing hands around $2,350. Other cryptos were mixed for much of the day with AXS recently off over 6%, but CRO and meme coin SHIB in the green more than 8% and 10%, respectively.

The crypto industry continued to feel the shockwaves of wider geopolitical and economic turmoil. Crypto exchange giant Coinbase (COIN) missed its first-quarter revenue estimates amid a 44% decline in trading revenue from the fourth quarter. Miner Riot Blockchain (RIOT) also missed analysts predictions for its first three months of 2022.

Cryptos' less tumultuous Tuesday tracked equity indexes, which were mixed with the tech-heavy Nasdaq rising about a percentage point and the Dow Jones Industrial Average falling slightly. Investors will be eyeing the April consumer price index report, which is widely expected to show that inflation slowed but prices remained high.

In emailed comments, Jaime Baeza, CEO of Miami-based crypto hedge fund ANB Investments, noted the pressure of macroeconomic events, including inflation and a tightening of central bank monetary policy on stocks and digital assets but attributed the most recent drop-off in bitcoin "to the de-peg of the UST." Baeza wrote that LFG's decision to defend the peg by selling bitcoin reserves "accelerated the sell-off of the broader crypto market as panic spread, and a more black swan systemic-risk event loomed closer."

In an interview on CoinDesk TV's "First Mover" program, Joseph Kelly, CEO of bitcoin financial services firm Unchained Capital, called the depegging "a scary headline thing."

But he added optimistically: "It's one of those things that you get to hold in contrast to bitcoin as a more sound, more explainable asset that isn't overpromising and trying to do things like maintain a dollar peg. It's one way that Bitcoin continues to shine in the long run."

Markets

S&P 500: 4,001 +0.2%

DJIA: 32,160 -0.2%

Nasdaq: 11,737 +0.9%

Gold: $1,839 -0.8%

Insights

Predicting crypto markets is challenging

The last week in crypto has shown an immense volatility, that few if any assets can match. Markets have lost more than $1 billion as Terra’s UST stablecoin was thrown off its 1:1 dollar peg and the crypto majors collapsed, bringing with it plenty of liquidations.

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

CoinDesk - Unknown

(Glassnode)

The timing of the U.S. Federal Reserve’s report on stablecoins couldn’t have been better.

“These vulnerabilities may be exacerbated by a lack of transparency regarding the riskiness and liquidity of assets backing stablecoins,” the report read, with Nellie Liang, the Treasury Department’s undersecretary for Domestic Finance, adding at an event, “They have the potential to generate destabilizing runs if the value of the assets backing the stablecoin decline abruptly.”

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

Some might think that this triple whammy of the de-pegging of UST (and its likely failure), a violent decline 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 conviction.

Sure, some data suggests that very thing. Bitcoin is flowing into exchanges at a pace not seen since November 2017.

Just over 50,000 bitcoin went into exchanges on Monday. Traditionally, exchange inflow means that traders are getting ready to sell their assets, which is seen as a bearish signal for prices. But it also means that traders might be preparing to make a play for the derivatives market. In this scenario, they would open long positions to accelerate their gains as the price of crypto recovers.

Consider what happened during November 2017. As Glassnode data shows, there was plenty of bitcoin on exchanges. It was the peak of the initial coin offering bubble and the price of bitcoin continued to appreciate – despite all these bitcoin on exchanges. Yes, there was a derivatives market, as BitMEX launched in 2014, but at the time it was still relatively unsophisticated and wouldn’t come of age until 2018.

The point is, this asset class, in the grand scheme of things, is still in its infancy. There are many signals we can use to help navigate through the market, but at the end of the day, crypto’s unpredictability means these indicators signify predictions and are not definitive.

Technician's take

CoinDesk - Unknown

Bitcoin daily chart shows support/resistance, with volume on bottom. (Damanick Dantes/CoinDesk, TradingView)

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

BTC rose by as much as 4% over the past 24 hours. It's down by 16% over the past week. Several alternative cryptos (altcoins) are outperforming BTC over the past 24 hours, suggesting a greater appetite for risk among short-term traders.

Typically, BTC declines less than altcoins during market recoveries because of its lower risk profile relative 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 occurred in late January. This time, however, negative momentum signals have increased the chance of additional breakdowns on the chart.

Further, the 14-day moving average of volume (based on Coinbase exchange data provided by TradingView) ticked higher, which could be an initial sign of capitulation. Still, current volume levels are lower than June of last year when BTC settled at about $30,000.

Important events

9:30 a.m. HKT/SGT(1:30 a.m. UTC): China Consumer price index (MoM/YoY April)

9: 30 a.m. HKT/SGT(1:30 a.m. UTC): China producer price index (YoY/April)

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

CoinDesk TV

In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:

"First Mover" dove into the crypto markets with three top industry leaders and analysts. What's causing the current sell-off and what's next? What is the future of UST stablecoin after it veered wildly from its dollar peg? Guests included Joseph Kelly, CEO of Unchained Capital; David Russell, vice president, market intelligence of TradeStation Group; and Bennett Tomlin, "Crypto Critics' Corner" co-host.

Headlines

Bitcoin Drops Below $30K Amid Broader Market Sell-Off, Hits 10-Month Low: The last time the largest cryptocurrency by market cap traded under $30,000 was in July 2021.

Azuki NFT Founder Admits to Abandoning Past Projects: The project’s floor price has dropped dramatically following the news.

New Fed Report Repeats Warning About Stablecoin Run Risks as UST Loses Peg: The Federal Reserve's biannual report came out on the same day Terra's dollar-pegged UST stablecoin fell below 85 cents.

Instagram Eyes Creator Economy With NFT Rollout: With millions of creators and billions of users, Instagram could turn NFTs into a cash cow, the company hopes.

Longer reads

Inflation Will Create a Political Vacuum. Can Bitcoin Fill It?: Prices are rising at a time of pervasive distrust in government to fix the problem. That leaves the door open to bitcoin, the ultimate anti-inflation hedge.

Said and heard

"It’s not always easy to tell who loses most when markets contract. We, or at least I, have a tendency to sentimentalize the economy knowing how people’s retirements and livelihoods are tied up in capital. And so “corrections” appear to be more personal than just the mechanizations of money. People are making decisions to buy or sell or hold, after all, often based on incomplete, contradictory or confusing information." (CoinDesk columnist Daniel Kuhn) ... “My plan is to lower everyday costs for hard-working Americans and lower the deficit by asking corporations and the wealthiest Americans not engage in price gouging and pay their fair share." (U.S. President Joe Biden) ... ""He [Jack Dorsey] and I are of the same mind that permanent bans should be extremely rare and reserved for accounts that are bots or scam accounts." (Tesla CEO Elon Musk as quoted by the BBC)

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CoinDesk - Unknown

Damanick was a crypto market analyst at CoinDesk where he wrote the daily Market Wrap and provided technical analysis. He is a Chartered Market Technician designation holder and member of the CMT Association. Damanick is also a portfolio strategist and does not invest in digital assets.

CoinDesk - Unknown

James Rubin is CoinDesk's U.S. news editor based on the West Coast.

CoinDesk - Unknown

Damanick was a crypto market analyst at CoinDesk where he wrote the daily Market Wrap and provided technical analysis. He is a Chartered Market Technician designation holder and member of the CMT Association. Damanick is also a portfolio strategist and does not invest in digital assets.

CoinDesk - Unknown

James Rubin is CoinDesk's U.S. news editor based on the West Coast.

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