Market Wrap: Bitcoin Stabilizes as Altcoins Underperform; Expect More Volatility

Analysts expect greater price swings because of macroeconomic risks and ongoing stablecoin woes.

May 12, 2022 at 8:18 p.m. UTC
Updated May 12, 2022 at 8:58 p.m. UTC

Damanick is a crypto market analyst at CoinDesk where he writes the daily Market Wrap and provides technical analysis. He is a Chartered Market Technician designation holder and member of the CMT Association. Damanick is also an equity/fixed income portfolio manager and does not invest in digital assets.

Bitcoin (BTC), the world's largest crypto by market capitalization, experienced a sharp decline toward $25,402 on Thursday. The cryptocurrency stabilized later in the New York trading day, but is still down by 20% over the past week.

Wild price swings have been the norm over the past few months, which left many alternative cryptos (altcoins) vulnerable to extreme selling pressure. In down markets, alts decline by more than bitcoin because of their higher risk profile.

For example, Solana's SOL token is down by 46% over the past week, compared with a 30% decline in ether (ETH) over the same period. And BTC declined less than several alts over the past 24 hours, indicating a lower appetite for risk among crypto traders.

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Meanwhile, on Thursday, the price of the Terra blockchain's token LUNA plunged below 2 cents. The sharp price move made the network vulnerable to governance attacks, which triggered a brief shutdown of the blockchain, which meant no transactions with the algorithmic stablecoin UST, LUNA or Terra's other cryptocurrencies could be processed.

"The more considerable risk is in another bout of market panic, caused by the macro environment and exacerbated by LUNA-driven risk that could lead to BTC and ETH losing support," Sean Farrell, vice president of digital asset strategy at FundStrat, wrote in an email.

Farrell stated that FundStrat is not ready to call a bottom in bitcoin because of macroeconomic risks and concerns about LUNA and UST.

"There could be significant negative repercussions for cryptocurrencies and digital finance if investors lose confidence in stablecoins," Fitch Ratings wrote in a Thursday report. The firm expects increased calls for stablecoin regulation going forward, especially as many regulated financial entities have increased their exposure to digital assets (including decentralized finance) in recent months.

Latest prices

Bitcoin (BTC): $28,635, −2.34%

Ether (ETH): $1,945, −7.89%

S&P 500 daily close: $3,930, −0.12%

Gold: $1,824 per troy ounce, −1.57%

Ten-year Treasury yield daily close: 2.82%


Bitcoin, ether and gold prices are taken at approximately 4pm 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 dominance rises

The chart below shows a short-term breakout in the bitcoin dominance ratio, or BTC's market cap relative to the total crypto market cap. The ratio typically rises in down markets as BTC experiences less selling pressure relative to smaller tokens.

A reading around 50% in the dominance ratio could signal a prolonged risk-off environment. For now, market conditions are still neutral as alts have gone in and out of favor over the past year. That suggests traders are still finding short-term opportunities to add risk, albeit with less conviction compared with last year's bull market.

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Bitcoin dominance ratio (Damanick Dantes/CoinDesk, TradingView)

Ether was down by as much as 11% over the past 24 hours, compared with a max 4% drop in BTC over the same period. The underperformance of ETH relative to BTC typically signals risk-off conditions.

The chart below shows a downtick in the ETH/BTC price ratio below its 40-week moving average. The ratio could remain under pressure, especially if cryptos and equities fail to stabilize over the next few weeks.

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ETH/BTC price ratio weekly chart (Damanick Dantes/CoinDesk, TradingView)

Some analysts expect downside risk based on historical trading data.

For example, after a rapid three-day decline of more than 12.5%, BTC tends to exhibit short-term weakness, according to Nautilus Capital. The firm highlighted nine similar downswings in BTC's price over the past five years – a small sample size, although enough to show volatile conditions are expected to persist.

Altcoin roundup

  • Terra restarts blockchain after brief shutdown: The Terra blockchain restarted around 1:45 p.m. ET Thursday after validators briefly halted the network to implement a patch that would prevent new actors from staking on it after the luna token (LUNA) fell to below 2 cents earlier in the day. Terraform said the price of LUNA fell too low to "prevent governance attacks," citing LUNA inflation as one factor. Read more here.
  • Terra proposes token burn: Terra believes decreasing the amount of UST in circulation while increasing the amount of available LUNA is the easiest way to return the UST to its dollar peg. “The primary obstacle is expelling the bad debt from UST circulation at a clip fast enough for the system to restore the health of on-chain spreads,” said Terra in a tweet. Read more here.
  • Anchor could cut yields: The contributors of Terra-based decentralized finance (DeFi) protocol Anchor have proposed cutting terraUSD (UST) rates to an average of 4% from the current 19.5% as the broader Terra ecosystem seeks measures to protect UST’s peg with the U.S. dollar. “Decrease minimum interest rates to 3.5%, and maximum deposit rates to 5.5%, with a targeted interest rate of 4%,” the ongoing proposal describes. Read more here.
  • PancakeSwap to reduce CAKE supply and boost farming rewards: Decentralized Finance (DeFi) application PancakeSwap has released a governance proposal that outlines a roadmap for its native token, CAKE. The proposal, which was passed with a 98.8% majority across 11 million votes, suggests imposing a supply cap of 750 million for the CAKE token. CAKE currently has a circulating supply of 295 million. The maximum supply is expected to be in circulation within the next three to four years. Read more here.

Relevant insight

Other markets

Most digital assets in the CoinDesk 20 ended the day lower.

Biggest Gainers

Asset Ticker Returns DACS Sector
Bitcoin Cash BCH +0.5% Currency
Polkadot DOT +0.2% Smart Contract Platform

Biggest Losers

Asset Ticker Returns DACS Sector
EOS EOS −11.2% Smart Contract Platform
Cosmos ATOM −10.3% Smart Contract Platform
Polygon MATIC −8.5% Smart Contract Platform

Sector classifications are provided via the Digital Asset Classification Standard (DACS), 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.

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Damanick is a crypto market analyst at CoinDesk where he writes the daily Market Wrap and provides technical analysis. He is a Chartered Market Technician designation holder and member of the CMT Association. Damanick is also an equity/fixed income portfolio manager and does not invest in digital assets.

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Damanick is a crypto market analyst at CoinDesk where he writes the daily Market Wrap and provides technical analysis. He is a Chartered Market Technician designation holder and member of the CMT Association. Damanick is also an equity/fixed income portfolio manager and does not invest in digital assets.

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