First Mover Asia: Terra's Difficult Post-Collapse Path: VCs Backing Away, Regulators Jumping on Stablecoins

Some investors see salvageable pieces in the rubble while others are bemoaning their involvement and want to forget the protocol ever existed; bitcoin edges up in weekend trading.

AccessTimeIconMay 22, 2022 at 11:18 p.m. UTC
Updated May 11, 2023 at 5:23 p.m. UTC
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Good morning. Here’s what’s happening:

Prices: Bitcoin gains slightly in weekend trading but can't break much beyond $30,000; ether and other major cryptos are in the green.

Insights: Terra's post-collapse path will be difficult.

Technician's take: BTC is roughly flat over the past week. Technical signals suggest a neutral to bearish outlook.

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.


Bitcoin (BTC): $30,376 +3.3%

Ether (ETH): $2,044 +3.6%

Biggest Gainers

Asset Ticker Returns DACS Sector
Solana SOL +4.6% Smart Contract Platform
Polygon MATIC +4.4% Smart Contract Platform
Ethereum Classic ETC +4.2% Smart Contract Platform

Biggest Losers

There are no losers in CoinDesk 20 today.

Bitcoin and major cryptos post small gains

Bitcoin, ether and most other major cryptos improved a little over the weekend.

Compared to earlier in the week, they could brag. But in the larger picture, the largest cryptocurrency by market capitalization was still deep in a bear market with no end in sight, and struggling to hover above the $30,000 support line it has held for the past 10 days.

BTC was recently trading at approximately $30,370, a roughly 3.3% rise from its ending point Friday. Ether, the second largest crypto by market cap, was up similarly over the same period and holding just over $2,000 – its perch for much of the past few weeks. AVAX was among the big winners, recently rising more than 8%. SOL and TRX were both up over 5%.

"Bitcoin managed to retain the support levels it found last week and even attempted range breakouts," Joe DiPasquale, CEO of crypto fund manager BitBull Capital wrote to CoinDesk. "However, $31K-$32K remains a strong resistance level [that] Bitcoin needs to successfully breach before we can look toward more upside."

Investors alarmed by central banking missteps to tame inflation, the ongoing economic fall-out from Russia's unprovoked invasion of Ukraine and the increasing likelihood of recession have veered away from riskier assets, including digital currencies and stocks since last fall.

To be sure, equity markets ended their Friday with a surge, but all that did was help the S&P 500 escape the bear market territory where it lingered for much of the day. The S&P, which bitcoin has tracked increasingly in recent months, closed flat after spending the morning and afternoon in the red. Indices earn bear market designation when they are off 20% from their previous highs. The tech-heavy Nasdaq, which crypto markets have tracked increasingly, rallied late to also hold its ground from the previous day, as did The Dow Jones Industrial Average (DJIA). Still, the DJIA declined for the eighth consecutive week, its longest weekly losing streak since the Great Depression. Each of the indices fell 2.9% or more for the week.

Tech stocks have led the ongoing declines with Apple and Meta Platform's (formerly Facebook) share price dropping 22% and 42% since the start of the year. But the retail sector, which fueled a large part of the economic recovery in 2021 and early 2022, has now also showed signs of weakening with Walmart, Target and Kohl's underperforming on their most recent earnings. "Households are feeling the effects of higher prices everywhere," First Republic Bank said in a note to investors, adding that "markets will remain under pressure with significant bouts of equity and bond volatility persisting as investors digest a regime shift toward tighter policy intended to slow inflation."

DiPasquale noted cautiously that crypto markets "had yet to see strong buying action, the kind that is typically indicative of a proper reversal," and that BitBull has "plans for both positive and negative price action from here."


S&P 500: 3,901 +0.01%

DJIA: 31,261 +0.02%

Nasdaq: 11,354 -0.3%

Gold: $1,846 +0.2%


Terra's difficult post-collapse path

As the rubble is swept up after Terra’s collapse, some investors are sorting through it for pieces on which to rebuild, while other investors are posting mea culpas or trying to back away from the project entirely. At the same time, experts are warning that regulators will use this implosion as a need for comprehensive stablecoin regulation.

On Terra’s governance proposal portal, 80% of eligible token holders that voted are pushing to rebuild the protocol — minus the algorithmic component.

Terra’s dozen or so investors have plenty of incentive to support this. The losses from their gamble on the protocol are astronomical.

Galaxy Digital’s (GLXY.TO) Mike Novogratz has spoken about the need for a post-LUNA redemption cycle. Delphi Digital said it “always knew something like this was possible..[but] miscalculated the risk of a 'death spiral.'” Hashed has stayed silent about its gargantuan loss.

DeFiance Capital, another investor, briefly removed the LUNA logo from its website (the Internet Wayback Machine says that happened after May 9), though founding partner Arthur Cheong said that “it was removed accidentally when we redesigned the layout, and it will be added back.” Convenient timing, indeed, and nothing like Three Arrow Capital’s Su Zhu deleting boosterish tweets for the Terra ecosystem because of a misclick.

When the rubble clears, what’s going to happen? Regulation, says Yves Longchamp, the head of research at Swiss digital asset bank SEBA.

“I have always been skeptical about algorithmic stablecoins. At SEBA we don’t offer any algorithmic stablecoins; I believe you can’t create stability out of the blue,” he told CoinDesk in an interview. “You need to have an underlying asset.”

Longchamp thinks that if stablecoins are here to stay, regulation is a must because there were some UST holders that had good faith in the project and were not aware of the underlying risks.

Regulators should discourage the use of algorithmically backed stablecoins, he says, by giving ones with sound backing a green light via a regulatory framework.

After all, with USDC, it's well known what’s behind it. Stablecoin tether (USDT) has worked so far because the redemption requests for USDT have been successful, but it's still unclear what’s behind it.

But with algorithmic stablecoins like UST, the problem, he says, is that dollars are created at no cost. It's not like USDC where you park a dollar to issue a dollar.

Decentralized finance (DeFi) and “stablecoins are right now going through what has been learned in the 19th century in the banking system, which at the end of the day, led to the rise of central banking,” he said.

But while banks like SEBA welcome regulation, and it would have likely prevented Do Kwon from imploding the market and forcing regulators down on the ecosystem, is this what the industry wants? Will venture capitalists, as hurt as they are with the hit on their balance sheets, think regulation gets in the way of their 100x returns?

Technician's take

Bitcoin weekly chart shows support/resistance (Damanick Dantes/CoinDesk, TradingView)
Bitcoin weekly chart shows support/resistance (Damanick Dantes/CoinDesk, TradingView)

Bitcoin (BTC) continues to struggle around the lower end of a yearlong trading range. The cryptocurrency could find support at $25,000 and $27,000, although there is risk of additional breakdowns in price.

BTC was down by as much as 4% on Friday and is roughly flat over the past week. Recent returns reflect choppy trading conditions with no sense of direction.

Momentum signals remain mixed despite oversold conditions on the charts. That suggests a neutral to bearish outlook over the next few days.

Lower support is seen at the 200-week moving average, which is currently at $21,954. A break below that level would yield a downside target toward $17,673, which would be a 74% drop from the all-time high of nearly $69,000 achieved last November. Bitcoin fell 83% peak-to-trough in the 2018 bear market.

Important events

Organization for Economic Cooperation and Development (OECD) hearing on crypto assets and common tax reporting standards

8:30 HKT/SGT(12:30 UTC): Chicago Fed national activity index (April)

CoinDesk TV

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

Following Terra LUNA and UST's collapse, controversial crypto entrepreneur Justin Sun joined "First Mover" to share his take on algorithmic stablecoins and thoughts on Tron's stablecoin USDD. Plus, Lily Zhang of Huobi provided insights on China's crypto market, and Felix Honigwachs of Xchange Monster had an update from "Crypto Valley" in Switzerland as the World Economic Forum kicks off in Davos.


The Fall of Terra: A Timeline of the Meteoric Rise and Crash of UST and LUNA: A detailed timeline of Terra's journey from its underdog start as a payments app in South Korea to a $60 billion crypto ecosystem to one of the biggest failures in crypto.

It’s Not Just LUNA. Terra’s DeFi Apps Have Hemorrhaged $28B: Investors have largely exited the Terra ecosystem – now evident in DeFi protocols on the blockchain – and analysts remain skeptical about its long-term prospects.

Former BitMEX CEO Arthur Hayes Sentenced to 2 Years Probation: Hayes pleaded guilty to one count of violating the Bank Secrecy Act (BSA) in February, and faced a sentence of up to 12 months in prison.

Bitcoin Options Data Suggests Bearish Sentiment Among Investors: Put/call ratio for bitcoin options reached yearly highs on Thursday, data shows.

Goldman Sees Little US Economic Impact From Lower Cryptocurrency Prices: The stock market decline has had a much larger effect on U.S. household net worth, the bank said.

Coinbase Co-Founder Fred Ehrsam Buys the Dip, Purchases $75M of Company Stock: The buys were made via venture capital firm Paradigm, of which Ehrsam is a co-founder and managing partner.

Longer reads

Today's crypto explainer: Why We Need Crypto Payments to Work

Said and heard

"But after investors watched hundreds of billions of dollars disappear in a sell-off this month, those famous boosters now face intensifying criticism that they helped drive vulnerable fans to invest in crypto without emphasizing the risks. Unlike clothes or snacks or many other products hawked by celebrities, the crypto market is volatile and rife with scams." (The New York Times) ... "[M]y obsession with the latest walk to earn scheme has me outside in the rain at 7:30 pm i need help." (Meltem Demirors/Twitter) ... "Even with the most recent market turbulence this year, the S&P 500 was still up about 75% from its 2020 low, as of May 20. Bear markets are rarely that brief. The underpinnings of a new bull market can’t be laid until people are so convinced that stocks can’t rise that the market finally begins to perk up. The bear market between 2007 and 2009 spanned 517 days (including non-trading days), according to Yardeni Research Inc. The prior bear market from 2000 to 2002 lasted 929 days." (The Wall Street Journal)


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Damanick Dantes

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

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

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