Good morning and welcome to First Mover. I'm Lyllah Ledesma and I'd like to update you on the latest crypto market developments, news and insights.
- Market Moves: Bitcoin traders took a beating overnight as long liquidations skyrocketed while Tether's USDT stablecoin lost its $1 peg.
- Feature: we take a look at what Terra thinks is the easiest way to tie UST back to a peg.
Price Point.
Bitcoin (BTC) briefly hit a low of $25,200 in the early hours of Thursday morning as the tether stablecoin USDT lost its peg to $1, continuing the carnage in crypto markets this week.
Bitcoin has fallen 20% in the last seven days and hasn't been this low since December 2020.
USDT, the world's largest stablecoin by market capitalization, fell to 97 cents in Asian hours, losing parity against the US dollar. On Coinbase, it fell as low as 96 cents.
Terra's UST stablecoin also continued its slide, reaching $0.28, according to CoinDesk.
"UST de-pegging has caused market-wide ripple effects," said Charles Storry, head of growth at Phuture, a crypto index platform. "What we're seeing now is panic. People are running for the exits and losing confidence."
In traditional markets, the S&P 500 lost more than 4.5% this week. The Nasdaq Composite fell more than 3% to its lowest level since November 2020.
Market Movements.
In the last seven days, BTC has not risen above the $35,000 mark, according to data from Messari.
Martha Reyes, head of research at BEQUANT, said in an email to CoinDesk that the markets in meltdown could present an opportunity for institutional players to start building positions and push for stablecoin regulation to build more confidence.
"While we can't say where the bottom is, and correlations between asset classes remain high, Bitcoin has survived corrections of 70-80% in the past. This could be an opportunity for institutions to build positions at better levels," Reyes said.
She added, "The uncertainty surrounding stablecoins is worrisome and could lead to another flush-out, but we may finally be getting the much-needed regulatory framework that could encourage institutions to get in. Regulators tend to be reactive, so this could be the catalyst for more regulation of stablecoins."
Liquidations
Liquidations of BTC long trades also took a hit overnight. According to Coinglass data, $430 million was liquidated in the last 24 hours.
Long liquidations accounted for $277 million and short liquidations for $198 million.
"This is a standard event seen in conventional futures markets and it is now taking its toll on crypto markets because it is an emerging asset and there is a lack of experienced investors using these instruments," said Hashdex Europe head Laurent Kssis.
According to Kssis, the fact that long liquidations dominate the market could push the price of BTC down further.
"$30,000 was the key support level, so $25,000 could be resistance after the $30,000 level is breached," Kssis said.
Last headlines.
- Citadel Securities, BlackRock, Gemini Reject Social Media Accusations of Involvement in UST Collapse A conspiracy theory that began on 4chan and was amplified by Cardano founder Charles Hoskinson was quickly denied by all parties
- Terra suggests token burning and increasing pool size to stop UST dilution Terra believes that reducing UST in circulation while increasing available LUNA is the easiest way to bring UST back up to par.
- Terra's LUNA has dropped 99.7% in less than a week. That's good for UST LUNA tokens lost 96% in the last 24 hours alone, causing more to be minted, which caused the UST price to rise.
- Cathie Wood's Ark Invest snaps up more than half a million Coinbase shares as exchange's stock plunges Shares of Coinbase Global (COIN) plunged 26.4% in after-hours trading Wednesday after reporting disappointing first-quarter results.
- Ether futures lead $1.2B in liquidations, crypto market cap falls 16% Overnight, ether futures led liquidation losses over the past 24 hours, while crypto markets lost over 16% of their total capitalization, data from multiple sources show.
- Terra-based DeFi protocol anchor proposes to cut UST yields to 4% The proposal comes amid ongoing concerns about the long-term stability of Terra tokens LUNA and UST.
Terra proposes token burn and increase pool size to halt UST dilution
By Sam Reynolds
Terra believes that downward pressure on UST share is diluting Luna, hindering recovery for both while creating a surplus of UST. The way to solve this problem is to burn UST and increase the available pool of Luna.
"The main obstacle is removing bad debt from UST circulation fast enough for the system to restore the health of on-chain spreads," Terra said in a tweet.
Algorithmic stablecoins like UST should be automatically pegged to the price of another currency. As explained in a previous CoinDesk Learn article, traders can exchange LUNA for UST at a price of $1, regardless of the market price, because algorithms on the backend manage the supply of LUNA, creating sufficient scarcity to justify the $1 price.
A token burn refers to withdrawing cryptocurrencies from circulation on the blockchain. It can be considered a deflationary event because it would increase the value of the remaining blockchain. For token holders, it would be an event similar to a stock buyback.
In a proposal made to token holders, Terra said it wants to burn the nearly 1 billion UST (about $690 million) in the community pool while increasing LUNA's base pool to 100 million, which in turn will increase the coin capacity to over $1 billion. This will help accelerate UST outflows from the system, bringing it back closer to its peg as the Luna price declines.
"Currently, UST combustion is too slow to keep up with the demand for excess UST leaving the system, which is hampered by the size of the base pool," the proposal states. "Eliminating much of the excess UST supply at once will alleviate much of the pressure on USTs.
Some comments on the proposal questioned whether this happened because of an error in Terra's coding, or whether it was also a product of a broader market downturn caused by the decline in the bitcoin price.
Validators on the network can vote for this proposal. According to a vote tracker, the Yes side received 50.47% of the vote, while the Abstain side garnered 49.1% of the vote. 87.8% of eligible voters have already cast their ballots, and the approval rate is 50%.
Today's newsletter was edited by Lyllah Ledesma and produced by Parikshit Mishra and Stephen Alpher.