The Outflow of Crypto Money
2022–05–16
Market Recap
Entire crypto market got hit by the Terra meltdown. The $UST de-peg and $LUNA failure wiped out over $300b from the market, leaving the total crypto market cap at $1.3T today.
Bitcoin ended red for the seventh consecutive week, suffered another 9.1% and plunged to a low of $25.3k. It was still struggling at the psychological level of $30k.
Altcoins underperformed Bitcoin during the market crash, implying lesser market risk appetite ($ETH -15.9%; $SOL -31.5%; $AVAX -33.5%; $LUNA -99.9% not a typo).
Recent macro concerns worsened the market sentiment: 50bps rate hike incoming and 8.3% CPI index in April announced last week, which was 0.2% higher than expectation.
Derivatives Market
Funding premiums elevated during volatile market, BTC and ETH funding rates turned positive while the rates for alts went south.
Annual funding rates for BTC and ETH were at +10.6% and +14.0% respectively.
Annual funding rates for DOT and ADA were at -31.4% and -15.3% respectively.
For liquidation, long liquidation was ahead due to dropped price actions, with over $2.4b BTC long being liquidated (Chart 2).
Altcoins Roundups
Altcoins have had one of the worst weeks ever in recent years, with many top L1 tokens down over 80% from their ATH. ($SOL -31.5%; $AVAX -33.5%; $LUNA -99.9% as $UST de-peg; DOT -14.3%; ADA -19.8%). Stablecoins except $UST were the outperformers this week ($USDC +0.3%; $BUSD +0.2%).
On Web3 front, the leading NFT token, ApeCoin ($APE) dropped from $11.3 to $5.5 (-51.3%) amid the crash but quickly rebounded to $8.3, ended the week with 26.5 % loss.
Crypto Updates
$LUNA <> $UST triggered the death spiral and recorded another biggest failure in the development of algorithmic stablecoin. $UST de-pegged, $LUNA hyper-inflated and lost ~100% of its value in 3 days, many exchanges including Binance, FTX and Bybit, started to delist related trading pairs and their derivatives. Since both $LUNA and $UST were top coins in the crypto space before default, this led to severe drawdown in the entire crypto market with over $300b outflow of capital.
With Bitcoin hit a low of $25.3k last Thursday, the bitcoin holdings of the institutional whales, Tesla and Microstrategy, were underwater. Tesla had 42,000 $BTC purchased at an average price of $31.6k; Microstrategy had 129,218 $BTC purchased at an average price of $30.2k.
Regulatory Updates
Whilst $UST struggled to retain its dollar peg, US Treasury Secretary Janet Yellen pushed regulation on stablecoin by the end of 2022. She mentioned that the new technology would increase innovations and efficiency but posed risks to the financial system, therefore required coordinated regulatory attention.
German laid down on crypto tax guidelines. Individuals can sell $BTC or $ETH tax free after a year of holding. The one-year holding period for tax-free benefit will also be applied to staked or lent cryptocurrencies.
Australian Bitcoin ETFs went live on Thursday. The launch was said to be timid as entire market was suffering significantly.
Institutional Updates
The Japanese investment bank, Nomura, joined the rivals including JPMorgan and Goldman Sachs to start offering Bitcoin derivatives to clients, including Bitcoin non-deliverable forwards and options.
Meta’s CEO, Mark Zuckerberg, revealed that the social media platform, Instagram, will launch an NFT feature soon. Creators and collectors will be able to share NFTs on Instagram without fees.
Chainalysis, a blockchain data platform, secured $170m in a Series F funding round led by GIC, a Singaporean sovereign fund, valued at $8.6b.
Dapper Labs, the NFT creator of NBA Top Shot, raised $725m for Web3 developer growth. Investors include a16z, Coatue, CoinFund, Greenfield One, Liberty City Ventures, Digital Currency Group, and Union Square Ventures.
Macro Front
The incoming 50bps interest rate hike and 8.3% April CPI announced last week worsened entire global market. Equities dropped significantly after the CPI announcement last week, which was 0.2% higher than expectation (S&P500 -2.4%; DJIA -2.1%; NQ -2.5%). Commodities also suffered as investors tend to be more conservative at current market sentiment, with Wheat outperforming the basket (Gold -3.8%; Oil -0.8%; Wheat +6.2%).
Conclusion
Interest rate hike, global inflation concern, stablecoin regulation and $LUNA <> $UST failure posed extreme fear to the crypto market. Market is extremely volatile, be patient and keep your capital. Good Luck!
