Good morning! Here's what happened:
Prices: Bitcoin struggles; altcoins underperform.
Insights: Terra's implosion threatens crypto credit protocols.
Technician's take: BTC is oversold and could see a short-term bounce.
Prices
Bitcoin (BTC): $29,127 +1%.
Ether (ETH): $1,968 -5.1%
Biggest Gains
| Asset | Ticker | Returns | DACS sector |
|---|---|---|---|
| Bitcoin | BTC | +1.0% | Currency |
| Bitcoin Cash | BCH | +0.4% | Currency |
Biggest losers
| Asset | Ticker | Yields | DACS Sector |
|---|---|---|---|
| Solana | SOL | -10.2% | Smart contracts platform |
| Cosmos | ATOM | -9.1% | Platform for smart contracts |
| EOS | EOS | -9.0% | Smart contract platform |
Another day to forget for cryptocurrencies
Bitcoin experienced a Thursday to forget. About altcoins, the less said the better.
After hitting a new 16-month low earlier in the day, the largest cryptocurrency by market cap recently traded at $29,100, up slightly in the last 24 hours. That was cold comfort for investors who have watched bitcoin slump along with other digital assets in recent days after the TerraUSD (UST) stablecoin collapsed relative to its one-for-one dollar peg. Bitcoin was already suffering from general concerns about high inflation and geopolitical turmoil.
Still, other cryptocurrencies fared far worse, a sign of the low-risk environment in which investors are quickly turning away from any asset with a hint of risk. Ether was trading at around $1,960, down about 5% after dipping below $1,800 earlier in the day, the first time it had done so since July last year. In the sea of major red cryptocurrencies, SOL, CRO, ADA and MATIC were each down about 10% at one point. SAND and ATOM fell 14.5% and 9%, respectively.
Meanwhile, the Terra blockchain token LUNA plunged below 2 cents on Thursday, prompting validators to briefly halt the network to implement a patch that would prevent new players from betting on it. Just a month ago, LUNA had reached a high of $120. UST last traded at about 33 cents, down about 54%.
Stock markets fared better, rallying late and closing slightly below their initial levels. A report Thursday showed mortgage rates had risen to 5.3%, their highest level since 2009, but rising prices were taking their toll.
"Higher-than-expected inflation figures in the U.S. have prompted investors to sell risky assets, which is also impacting cryptocurrencies," Daniel Takieddine, CEO for the Middle East and North Africa region at brokerage BDSwiss, wrote in an email. "The move toward a rapid rise in interest rates could keep cryptocurrencies on a downward trajectory for an extended period as investors move into safer assets."
He added, "This downward trend is exacerbated by the recent crash of TerraUSD, which has largely lost its peg to the USD. Its drop in value has shaken investor confidence in the crypto markets and the stablecoin concept in particular."
Markets
S&P 500: 3,930 -0.1%
DJIA: 31,730 -0.3%
Nasdaq: 11,370 -.06%
Gold: $1,820 -1.8%
Insights
Terra's implosion threatens crypto-credit protocols
Crypto-credit, the backbone of decentralized finance (DeFi), was built in the rubble of the March 2020 crash triggered by COVID-19. The prevailing logic behind crypto lending is to provide a smoother exit than a quick sale that depresses prices.
But as the collapse of Terra's LUNA and UST tokens sent shockwaves throughout the industry, accelerating the decline of bitcoin's price, throwing Tether off track and reiterating institutional and regulatory concerns about the viability of the asset class, crypto lending appears to be its next victim.
Data now suggests there is a cavalcade of people looking for an exit.
The total value of DeFi is $150 billion, a drop from just under $240 billion at the start of the year and from $230 billion a month ago, according to data from Glassnode.
The data suggests that many traders are moving their cryptocurrencies out of DeFi logs and into stablecoins like USDC to redeem them (stablecoins like USDC and USDT can be redeemed for U.S. dollars on demand).
The supply of USDC used by institutions and U.S.-based traders due to its regulatory compliance currently stands at just under $48.5 billion, up from $53 billion in early March. A similar trend can be seen in Glassnode's data on net exchange positions. They have slipped into the red since mid-April, a trend that is now accelerating as Glassnode reports daily outflows in the range of $2 billion.
At the same time, lending protocols such as Compound are reporting a sharp decline in stablecoin supply. Compound, for example, reports an 11% drop in USDC supply. At the same time, gas trackers show that USDC's gas charges have increased by 175% in the last week, while gas consumption at the Aave lending protocol has increased by 705% in the last week.
The prices of lending protocols are not well prepared for this exit. Tokens for the major lending protocols have fallen across the board, with Aave down 53% in the last week. Celsius is down 55.6% in the last week and Compound is down 49% in that time.
Although there is less USDC in circulation, there does not appear to be any particular increase in demand. Given the coming bear market, the pace of trading is likely to slow and planned investments in crypto infrastructure may slow. An example of this is the yield on Alameda Research's syndicated loans based on the Maple Finance protocol.
Alameda's latest USDC-denominated loan, which was launched last week when the Luna crisis emerged, now offers a yield of just 6.5%. When the project began last November, the available yield was 8.5%. Although less USDC is available, Alameda anticipates a slowdown and does not have the same need.
The good news from this crisis is that many pieces of infrastructure around crypto remain in place. USDC and Binance's BUSD, are still up $, and redemptions - even of Tether, which was briefly knocked off its peg - are being processed on demand.
Tech opinion
Bitcoin holds support above $27K; resistance at $35K-$40K.
Bitcoin (BTC) appears to be oversold on the charts, which usually precedes a short-term price bounce.
The cryptocurrency fell towards $25,400 on Thursday afternoon before quickly recovering above the $27,000 support level.
The Relative Strength Index (RSI) on the daily chart is more oversold than it has been since January, when a 30 percent relief rally preceded it. This time, however, negative long-term momentum could limit upside around the $35,000 resistance level.
Moreover, according to DeMARK indicators on the daily chart, BTC has registered a signal of trend reversal. This means that selling pressure could ease in the coming days as buyers return from the sidelines. Another daily close above $30,000 would confirm the counter signal, although the chances of a clear uptrend from here are slim.
Important events
HKT/SGT(UTC): Australian Housing Federation new home sales (MoM/April).
10:00 HKT/SGT(2:00 UTC): Speech by Michele Bullock, deputy governor at the Reserve Bank of Australia.
3 p.m. HKT/SGT (7 a.m. UTC): Speech by Luis De Guindos, vice president of the European Central Bank.
CoinDesk TV
In case you missed it, here is the latest episode of "First Mover" on CoinDesk TV:
UST Meltdown Continues as Crypto Markets, Communities Suffer. Here's Where Things Stand
Another 24 hours of painful losses in the crypto markets. "First Mover" discusses new details in the TerraUSD (UST) drama and market analysis from Kevin Zhou of Galois Capital, Michael Gronager of Chainalysis and Martin Leinweber of MV Index Solutions.
Headlines
Terra's LUNA is down 99.7% in less than a week. That's good for UST: LUNA tokens have lost 96% of their value in the last 24 hours alone, leading to more tokens being minted, which has caused the UST price to rise.
Tether Loses $1 Peg, Bitcoin Falls to 2020 Levels of Nearly $24K: Weak sentiment around stablecoins may have contributed to the de-pegging of USDT on Thursday morning.
Global Crypto Regulatory Body Coming Soon, Says Top Official: A joint body to coordinate efforts to regulate cryptocurrencies on a global scale could become a reality next year, according to Ashley Alder, chairman of the International Organization of Securities Commissions.
Terra proposes 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 to par.
Chainalysis raises $170 million at a valuation of $8.6 billion: The crypto detective firm says its tools monitor $1 trillion worth of transactions each month.
Longer Reading
Do Kwon is the Elizabeth Holmes of cryptocurrency: If you promise investors something impossible, is that a crime?
Today's crypto explainer: what you need to know before buying bitcoin from an ATM machine
Other voices: Panic in the crypto market has Janet Yellen's attention (CNN)
Said and heard
"Web 3 has stunned the world by creating, in less than a decade, a parallel financial system of unprecedented flexibility and creativity. Cryptographic and economic primitives or building blocks such as public-key cryptography, smart contracts, proof-of-work, and proof-of-stake have resulted in a sophisticated and open ecosystem for the expression of financial transactions. However, the economic value with which finance trades is created by people and their relationships. Lacking primitives to represent such a social identity, Web 3 is fundamentally dependent on and reproduces the limitations of the centralized Web 2 structures it seeks to overcome." (Glen Weyl, co-author of "Radical Markets" for CoinDesk) ... "The economy can only grow so fast without overheating. A big problem now is that no one is sure how fast that is." (The Wall Street Journal) ... "As Russia's grinding war pulverizes eastern Ukraine and eats away at the global economy, it also has unintended consequences for President Vladimir V. Putin, whose aggression is leading to a stronger, Western-oriented security architecture in Europe - the very thing the Russian leader had hoped to weaken." (The New York Times)