It looks like it’s time to fill out that McDonald’s job application with crypto falling off a cliff this week. Bitcoin tumbled around AU$12K four days ago from AU$55K down to AU$43K (the lowest prices since July 2021) alongside a major sell off in stocks, with the tech heavy Nasdaq in the US down another 4.3% on Monday and 26% year to date. Crypto’s market cap is down 35% in the same period and Bitcoin is now more than 50% off its all time high. The Future Fund LLC’s Gary Black tweeted today “BTC is nothing like gold, it’s Nasdaq on steroids“. Bitcoin has completed six red weekly candles in a row for the first time since 2014. Interest rates are rising along with the US dollar and the US CPI figures come out mid-week which will indicate how much more pain is to come. Crypto’s plunge was exacerbated by the UST stablecoin falling off its peg and deploying some of its BTC reserves. At the time of writing Bitcoin was down 19% for the week to trade at AU$44,415 (US$30.7K), Ethereum lost 19% for the week to trade around AU$3,300 (US$2.3K), XRP (-19%), Cardano (-19%), and Polkadot (-25%). The crypto fear and greed index bottomed out at 11, or Extreme Fear.
From the IR OTC Desk
The US Federal Reserve raised the target range for the federal funds rate by 50bps to 0.75% – 1.00% at last Thursday’s (4th of May 2022) meeting. Of note, Chair Jerome Powell acknowledged that the economy is in good shape to absorb interest rate increases due to the current strength of the labour market. Chair Powell highlighted that job vacancies versus active job seekers were currently near a 2:1 ratio – an indication of an extremely tight labour market. As we highlighted last week, following the most recent print of the employment cost index (ECI), one of the main concerns for the Federal Open Market Committee (FOMC) is the embedding of an upward wage/price spiral if inflation were to remain embedded. While 75 bps or 100 bps increases have been announced as ‘off the table’, Chair Powell indicated that 50 bp increases should likely be expected at the upcoming June and July meeting dates – data dependent. The balance sheet has been formally announced to begin contraction, starting 1 June. The initial reduction will be a monthly runoff of US$47.5bn/month increasing to no more than US$95bn monthly after 3 months. Watch this space.
On the OTC desk – sell side flows have continued to dominate activity across the desk. Over the past few weeks, market fear was initially expressed as a reduction in trading volume of BTC and ETH. As it currently stands, our volumes have picked up significantly, however the sentiment remains one of outright fear. Across the desk, we have seen only a very small handful of well-seasoned traders who have been active in ‘buying the dip’. For a third week in a row, ETH/BTC continues to trade around the 0.0750 level, and despite exhibiting wild swings at times, has failed to move materially lower with the broad market selloff. This indicates that BTC is well and truly caught up in the category of being a ‘risk’ asset at the current point in time. With this in mind, US tech stocks will continue to drive the sentiment of the cryptocurrency market.
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Crypto markets are correlated with traditional markets at the moment and are mirroring crashes in tech stocks, however a big factor in this week’s plunge has been stablecoin TerraUSD (UST) falling more than 30 cents off its $1 USD peg, and sister token LUNA’s market cap falling below UST’s which throws its whole algorithmic mechanism to support the peg into disarray. Some apparently coordinated FUD about Terra on social media coincided with a whale selling UST worth US$ 285M (AU$ 409M) on the weekend. Terra’s Luna Foundation Guard has been on a Bitcoin buying spree of late but is now deploying US$1.5B (AU$2.16B) worth of Bitcoin to prop it up. There are mixed reports on what’s happening, but it seems as if they’ll be selling a bunch of Bitcoin (which will help tank the price) so they can buy back in lower.
The bears are getting louder, with the chorus of those predicting doom growing louder every day. It’s not just a crypto thing: many like Michael J Burry of Big Short fame think traditional markets are on the cusp of a huge crash and tweeted a chart showing the 10-year run up to the 1929 and 2000 crashes, overlaid with the ten-year run up in stocks to now. Real Vision founder Raoul Pal tweeted he was “struggling to see how we are going to avoid a global recession. The odds are rising every day. Not a certainty yet but close.” A thoughtful Redditor created a chart based on CoinGecko data showing exactly how far the top 100 altcoins are from their all-time highs. That said, the market has a habit of doing the opposite of what everyone expects, as we saw with the March 2020 crash.
Argentina banks thwarted on crypto
Two of Argentina’s big banks announced they’d offer crypto trading to customers this week… but two days later the Central Bank of Argentina stepped in to block the move. While it cited the usual concerns around a lack of regulations, the move may well be related to a US $44B (AU$ 63B) extended debt plan from the International Monetary Fund, a clause of which requires the country to “discourage the use of cryptocurrencies.”
The Bank of International Settlements has released new research showing 73 out of 81 central banks around the globe are working toward rolling out their own CBDCs. “Globally, more than two-thirds of central banks consider that they are likely to or might possibly issue a retail CBDC in either the short or medium term,” BIS said. If the example of China is anything to go by, this could be bad news for crypto as they introduced their most sweeping bans (at least in part to clear out a competitor to the digital yuan that it couldn’t control).
NFT market collapsing or in rude good health
The Wall Street Journal released a report stating the NFT market is collapsing and sales were down 92% from their peak, and the number of active wallets fell 88%. However, if you exclude the impact of Axie Infinity’s sales tanking, the data from Dune Analytics suggests active users aren’t that far off record highs nor are transactions per day. Chainalysis also released a report showing that collectors had already sent US$ 37B (AU$ 53.2B) to NFT marketplaces as of May 1, almost equaling the US$ 40B (AU$ 57.5B) sent in all of 2021.
Generic Ethereum yield tokens
Ethereum Improvement Proposal EIP-4626 started to attract some attention this week. The proposal would introduce a new standard of generic Ethereum-based tokens that can provide yields and replace things like vaults. It would also boost the interoperability of different DeFi protocols. “ERC-4626 will be a huge game changer and 99% of #DeFi folks are sleeping on it,” said 0xSassun on Twitter, the co-founder of the Stack3 DAO.
Nerves of steel
For those with nerves of steel, market crashes potentially provide good buying opportunities (if you somehow manage to time it right). Crypto analyst Philip Swift, posted a Bitcoin two year moving average chart and said: “It’s that time in the cycle again! Price has dropped below the 2yr MA. Accumulate.” Whales have been buying and so has El Salvador’s government. The safest thing to do of course is nothing. “As we’ve seen from every downturn ever, the best thing you can do with long-term assets like Bitcoin is hold, or even increase your position if you’re set up to do that,” said Alex Miller, chief executive officer of Hiro.
BTC price vs. wallets holding 10,000 to 100,000 BTC. Source: @Mangyek0 [Twitter]
Bitcoin crosses halfway point to next halving as well as a new hash rate high
On Thursday, the 105,000th bitcoin block was mined since the last halving, marking the halfway point to the next halving in April 2024. Halvings occur every 210,00 blocks and determine the Bitcoin issuance rate, which is currently at 6.25 new BTC every ~10 minutes. The issuance rate and the supply shock that goes along with halvings has historically had a considerable impact on the price. Around the same time, the hash rate also hit 249.1 exahashes per second (EH/s), a new all-time high. Consistent hash rate increases seen in the past year has shown that Bitcoin’s security, has never been stronger as miners work to secure the network.
Bitcoin mean hash rate (7d Moving Average) | Source: Glassnode
Until next week, happy trading!