Good morning and welcome to First Mover. I'm Brad Keoun, here to guide you through the latest crypto markets, news and insights. (Lyllah Ledesma is out this week).
- Market Movements: May was supposed to be a strong market for bitcoin. Instead, crypto markets were pressured by the terra blockchain crisis and the Federal Reserve's increasingly tight monetary policy.
- Feature: where has all the bitcoin gone? The Luna Foundation watchdog behind the "reserve" for Terra's UST stablecoin gives an update, but skeptics abound.
Price Point.
The month of May is usually one of the strongest times of the year for bitcoin performance, with an average return of 18% over the past nine years.
But as crypto markets head into the second half of May, bitcoin is down 21% so far this month and currently sits at $30,000, with few analysts predicting a quick recovery. CoinDesk's Shaurya Malwa reported Monday that bitcoin (BTC) has now fallen for seven straight weeks - a dismal stretch that is unprecedented in the nearly decade-long history of the largest cryptocurrency's pricing.
Aside from the epic collapse of the LUNA token and the Terra blockchain's UST stablecoin last week (more on that below), there appears to be little relief coming from the direction of traditional markets. The Federal Reserve shows little inclination to back away from aggressive monetary tightening to curb the hottest inflation in four decades.
Bitcoin has become increasingly correlated with U.S. technology stocks of late, so a more aggressive stance by the Fed will only put more pressure on the cryptocurrency's price. (Economic data on the state of U.S. manufacturing, retail sales and the housing market are expected this week.)
"The gloomy outlook for U.S. monetary policy, where there is still no light at the end of the tunnel with rate hikes, reinforces the downward trend," FxPro market analyst Alex Kuptsikevich told Malwa in an email. "We do not expect the bears to loosen their grip in the coming weeks."
U.S. stock futures were lower Monday, as were European stock indexes.
Market Moves.
Lloyd Blankfein, senior chairman of Goldman Sachs, provided an example over the weekend of how bearish sentiment has become, saying the U.S. economy is exposed to "very, very high risk." Such an environment could lead to a downturn in U.S. equities, which could spread to bitcoin and trigger further selling in the coming weeks if the current correlation continues.
"The multiple headwinds have given market participants almost no place to hide in any asset class," David Duong, head of research at Coinbase Institutional, wrote in a note Friday. "The downside scenarios are certainly still in play."
Duong said that from a price chart perspective, bitcoin is in a "no man's land," with the next key technical support at the 200-week moving average around the $22,000 to $23,000 area. "If things continue to deteriorate, the next support line would be around $20,000, which was the all-time high in the previous 2017/2018 cycle," Duong said.
Last week's debacle, when more than $40 billion in value was wiped out by Terra's collapse, has rattled crypto traders. The Crypto Fear & Greed Index from the Alternative.me website registers "extreme fear." BitMEX founder Arthur Hayes described the Terra episode as "Luna Brothers Inc," recalling the rapid collapse of Lehman Brothers in 2008 that nearly brought down the global financial system. "Now that the so-called death spiral has stopped, investors will be eager to see if tokens can maintain their price levels for at least the next few days," Simon Peters, a market analyst at crypto trading platform eToro, wrote Monday.
That said, there could be other signs of contagion from Terra's fallout. Deus Finance's stablecoin Dei (DEI) lost its peg to the U.S. dollar, falling as low as 54 cents in European hours on Monday, data showed. And Wall Street firm Morgan Stanley wrote in a report last week that high-flying NFTs could be due for a revaluation, arguing that the most speculative and leveraged areas of the crypto markets are now in focus.
The biggest hope for bulls, however, may be reports of continued interest in cryptocurrencies from Wall Street and institutional investors. Elwood Technologies, the cryptocurrency company backed by billionaire fund manager Alan Howard, has raised $70 million in a funding round led by Goldman Sachs and Dawn Capital, CoinDesk's Ian Allison reported Monday.
"Retail investors are no longer alone in seeing value in the sector, and long-term investor plans are still being developed in the background," Peters wrote.
Last Headlines.
- Bitcoin posts first seven straight weeks of losses Inflation fears and poor macroeconomic sentiment have caused bitcoin to fail as an inflation hedge in recent weeks.
- Crypto hedge fund Elwood closes $70 million funding led by Goldman Sachs and Dawn Capital Dawn Capital led the Series A along with CommerzVentures, Barclays, Galaxy Digital Ventures and BlockFi Ventures.
- Australian Tax Office Warns Crypto Investors of Capital Gains Obligations The rate of capital gains tax on digital assets in Australia is determined by an investor's income tax rate.
- Digital euros could hit market within four years, ECB chief Panetta says Peer-to-peer payments among friends could be an initial test case, though no final decision has been made.
- Grayscale Investments Launches Its First ETF in Europe The Grayscale Future of Finance exchange-traded fund will be listed on the London Stock Exchange, Deutsche Börse and Borsa Italiana.
- Indian central bank says cryptocurrencies could lead to 'dollarization' of economy: Report RBI officials said cryptocurrencies could undermine the central bank's ability to regulate money flows.
- Nigeria's SEC confirms in new rulebook that all digital assets are securities Rules aim to clarify the role of cryptocurrencies in the economy by creating a regulatory framework.
Luna Foundation guards with 313 bitcoin after UST crash.
By Sam Kessler
The Luna Foundation Guard (LFG), official custodian of Terra's bitcoin reserves, released a statement Monday documenting how it cashed out millions of dollars worth of cryptocurrencies in its failed attempt to maintain the TerraUSD (UST) stablecoin peg.
In the statement, LFG notes that its BTC reserves are almost completely depleted - down from about 80,000 BTC to about 300. The remaining assets, which largely consist of the crashed UST and LUNA tokens, will apparently be used to compensate investors.
Monday's statement from LFG comes amid criticism that Terra's reserve funds - which were supposed to belong to the "decentralized" Terra community - have been handled with a lack of transparency by Terra's centralized leaders and investors.
It also comes after leaders in the blockchain space, including Ethereum founder Vitalik Buterin, called on Terra to compensate smaller holders of UST and LUNA before the largest investors.
"There seems to be little hope for those hoping that some of the reserves could be used to compensate stablecoin users - since there is so little of it left," Tom Robinson, chief scientist and co-founder of blockchain analytics firm Elliptic, wrote in an email. "Of course, we will wait to see if LFG can provide evidence to support their claims."
Today's newsletter was edited by Brad Keoun and produced by Parikshit Mishra and Stephen Alpher.