Market Wrap_ Cryptos fall amid bearish sentiment

Market Wrap_ Cryptos fall amid bearish sentiment

The bitcoin Fear & Greed Index reached the second lowest fear score in history. Analysts expect a phase of lower returns.

Bitcoin (BTC) traded lower on Tuesday as sentiment among crypto traders continues to decline.

The Bitcoin Fear & Greed Index has been stuck in the "fear" zone for the past month, reaching the second-lowest level in the index's history last week. Nevertheless, the index has recovered slightly in recent days, suggesting that the extreme bearish sentiment is starting to ease, especially if BTC rises back above $30,000.

At the moment, most alternative cryptocurrencies (altcoins) underperformed Bitcoin on Tuesday, suggesting a lower risk appetite among traders. For example, Ether (ETH) fell 4% in the last 24 hours, while BTC declined 2%. Avalanche's AVAX dropped 9% and Fantom's FTM token fell 14% on Tuesday.

Due to their higher risk profile, alts tend to fall more than BTC in down markets.

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From a technical perspective, price swings could be limited until long-term momentum improves. That could point to a full year of lower returns for stocks and cryptocurrencies compared to the strong uptrend in 2020.

Volatile markets could provide opportunities for short-term traders who cannot commit to price trends and take long or short positions. Similarly, investors nimble enough to reduce risk can deploy idle cash for the next upward cycle in asset prices.

In the short term, however, it can be difficult to spot price changes. For example, Bitcoin tends to generate positive returns during periods of extreme bear markets, according to Arcane Research. "Bitcoin has also experienced continuous sell-offs after extreme fear. Therefore, one should not blindly expect it to be worth betting on fear and bad momentum."

Current prices

●Bitcoin (BTC): $29.369, +0.81%

●Ether (ETH): $1,962, -1.17%

●S&P 500 daily close: 3.941, -0.81%

●Gold: $1,866 per troy ounce, +0.97%

●Ten-year Treasury yield daily close: 2.76%.

Bitcoin, ether, and gold prices are determined at approximately 4 p.m. 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

Declining Yields

The chart below shows a long-term decline in bitcoin's compound annual growth rate (CAGR), provided by Glassnode, a crypto data platform.

The larger the bitcoin market becomes, the more capital is required to move market prices. That can lead to diminishing returns over time as the cryptocurrency matures.

"We can see the significant decline in the four-year CAGR after the May 2021 sell-off, which we believe was likely the starting point of the prevailing bear market trend," Glassnode wrote in a blog post.

Decreasing returns, however, are not just a result of larger market size.

From a macroeconomic perspective, a long period of accommodative monetary policy in recent years has fueled a strong rally in speculative assets such as stocks and cryptocurrencies. Bitcoin, in particular, has traded within four-year bull and bear cycles that have yielded higher returns compared to equities, albeit with higher volatility.

Currently, investors around the world are struggling with tighter monetary policy, coupled with high inflation and slowing economic growth. This could lead to declining returns in both traditional and crypto markets.

"If inflation remains high for many years, both history and today's high starting valuations suggest that it will be very difficult to generate positive real returns (adjusted for inflation) in most traditional financial asset classes," Deutsche Bank wrote in a research note. "Nominal returns (excluding inflation) are also likely to lag well behind their long-term trend. Commodities could be the exception."

Altcoin Overview

  • Milady plunges amid drama: Floor prices (also called floor prices) for the popular non-fungible token (NFT) collection "Milady Maker" plunged nearly 70% last week. The large price drop was an isolated event in the NFT market and is likely related to the drama that revealed the token's creator was a controversial figure associated with a popular online cult. The collection of 10,000 anime-inspired computer-generated icons already had a troubling background, as some of the artwork bore the name of a Nazi concentration camp. Read more here.
  • Terra fiasco brings exchanges under scrutiny: Following the collapse of Terra, South Korean authorities are set to introduce measures to subject crypto exchanges to closer scrutiny, according to local reports. The Korea Times wrote that there are around 280,000 investors in the country who are believed to have been victims of UST stablecoin and LUNA tokens, which fell to near zero in a matter of days. Authorities will also investigate whether Do Kwon, the CEO of Terra creator Terraform Labs, committed fraud when he approached investors with his crypto project. Read more here.
  • Crypto firms fight back against tax rule: Crypto industry representatives are fighting with the OECD to exempt decentralized financial and non-fungible token (NFT) transactions from tax reporting rules. The OECD, an international organization that includes most developed economies, is trying to introduce new rules to prevent cryptocurrencies from being used to hide assets out of sight of the taxman. On the other hand, digital asset companies believe that some crypto assets simply don't fit the same mold as other traditional assets, such as stocks or gold, and that applying the same rules would be too much of a burden for them. Read more here.

Relevant Insights

  • Wall Street Says a Fed Digital Dollar Means Doom for Banks: The U.S. Federal Reserve is considering whether to launch a central bank for cryptocurrencies (CBDC) like other countries, and bankers think it's a dangerous idea.
  • ECB warns crypto risks could spill over into economy: Given the increasing risks of cryptocurrencies, it is important to urgently include them in the regulatory framework, the European Central Bank said in a report.
  • Coinbase-Led Travel Rule Group Grows Members, Expands to Canada and Singapore: The original group of crypto founders has grown to more than 30 members, including heavyweights such as Binance US, Circle, Robinhood and Paxos.
  • The social media disruptor project Liberty will run on Polkadot's blockchain network: The partnership follows former Los Angeles Dodgers owner Frank McCourt's $100 million funding last year to disrupt social media dominated by incumbents.
  • Bitcoin posts eighth week of losses, but sentiment indicator points to uptick: Sentiment indicators hit a "bottom" on Monday, while a prominent fund manager called for a retest of 2019 price levels.
  • Coinbase enters Fortune 500 list of largest US companies: The first crypto company to make the list, Coinbase reported revenue of more than $7.8 billion in fiscal 2021 and ranked 437th.
  • DeFi Trading Hub Uniswap Exceeds $1T in Lifetime Volume: Although traders still tend to prefer centralized exchanges, DEX continues to expand across Web 3.

Other Markets

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

Biggest gains

Asset Ticker Returns DACS Sector
Ethereum Classic ETC +4.8% Smart contracts platform
Litecoin LTC +1.3% Currency
Bitcoin BTC +0.6% Currency

Biggest losers

Asset Ticker Yields DACS Sector
Algorand ALGO -5.3% Smart contracts platform
Cosmos ATOM -5.0% Platform for intelligent contracts
Internet Computer ICP -2.8% Data Processing

Sector classifications are provided through the Digital Asset Classification Standard (DACS), which was 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.