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Morning Crypto Briefing: BTC Pivots $30,000, ETH $2,000 As Market Consolidation Contines

Key Points

  • Stabilization within recent ranges remains the dominant theme of this week’s trade in cryptocurrency markets.

  • Bitcoin and ethereum are back to pivoting $30,000 and $2,000 respectively.

  • Familiar themes (central bank tightening, growth/inflation fears) remain in focus amid quiet trade.  

State Of The Market

Stabilization within recent ranges remains the dominant theme of trade in cryptocurrency markets this week. After dipping once again to the low $1.20s trillion on Tuesday, total cryptocurrency market capitalization has once again bounced back to the mid-$1.20s trillion, leaving it well within the $1.20-35ish ranges of the past nearly two weeks.

Recent stabilization is in fitting with price action in US equity markets, with which crypto tends to maintain a strong positive correlation. For example, in pre-market trade on Wednesday, futures of the S&P 500 index are trading in the mid-3,900s, little changed versus levels two weeks ago.

Whilst recent stabilization is a relief for crypto holders, it remains too early to bet on a substantial near-term rebound given ongoing bearish market themes that continue to keep macro risk sentiment suppressed. These include fears about aggressive central bank tightening from major global central banks (namely the US Federal Reserve), concerns about weakening global growth and concerns about still very elevated inflationary pressures, which mean fiscal and monetary easing will not be coming to the rescue.

Already this week, we have had downbeat Snap earnings and soft US PMI data for May allude to a weakening macro environment in the US, which comes on the heels of downbeat commentary on the economy from major US retailers last week. All the while, the Russo-Ukraine war rumbles on and Chinese lockdowns persist as the nation pursues what feels like its increasingly untenable “zero Covid” strategy, dampening the global growth outlook and worsening inflationary supply chain snags/shortages.

There hasn’t been much by way of notable updates regarding these themes and Wednesday will be a quiet session, with the most notable event commentary from Fed Vice Chair Lael Brainard at 1715BST. Brainard is expected to stick to the script in reiterating that the Fed will be taking rates to neutral “expeditiously” by the end of 2021 and that further hikes in 2023 remain a strong possibility if inflation doesn’t abate.

The US dollar and US yields have been waning on increased US growth concerns as of late. Should any hawkish Fed vibes spark upside in either of these, that could hurt crypto. Cryptocurrencies tend to have a negative correlation to both the US dollar and US yields. Amid what is expected to be a quiet session, traders will also be monitoring the World Economic Forum for any further notable commentary, perhaps in the form of more calls for crypto regulation.

Price Action Update

Amid the broad theme of stabilization, bitcoin was back to pivoting either side of the $30,000 level on Wednesday as crypto traders await fresh fundamental (or technical) catalysts. At current levels just below the psychologically important level, bitcoin’s market cap sits at close to $570 billion and it’s crypto market dominance at just above 45%.

Ethereum was last trading just below the $2,000 level and also well within recent ranges, giving it a market cap of just under $240 billion and a market dominance of around 19%.

In terms of the major non-stablecoin altcoins, conditions have been unusually subdued for cryptocurrency markets, with BNB up 2.8%, XRP down 1.3%, ADA up 0.3%, SOL down 1.0%, DOGE down 0.4%, DOT up 2.3% and AVAX down 0.4% over the course of the last 24 hours, according to CoinMarketCap data.

Crypto News, Commentary

The largest US cryptocurrency exchange Coinbase has just become the first crypto company to break into Forbes’ Fortune 500 list, after posting revenue of $7.8 billion in 2021, placing it at number 437. The company was first listed on the Nasdaq exchange in April 2021.

In terms of some notable commentary at this week’s meeting of the World Economic Forum (WEF) in Davos, Switzerland (which began on 22 May and ends on 26 May), the CEO of Circle Jeremy Allaire has continued to push the adoption of digital currency with cash-like features. According to Allaire, for any digital currency to succeed, it must provide the economic sovereignty provided by physical cash, i.e. privacy, portability and censorship resistance. Crypto has been a hot topic at this year’s WEF, with calls for more regulation in the industry following Terra’s collapse two weeks ago.

Meanwhile, in further WEF commentary, Guggenheim Partners founder Scott Minerd warned of the possibility that bitcoin might drop to sub-$10,000 levels if it loses its grip on $10,000. “We’re seeing crypto collapse the way it is, I think it’s got more downside to it,” he noted, adding that “when I look at Bitcoin, which the technicals have been better than anything else, when we break below $30,000 consistently, then $8,000 is the ultimate bottom”. “I think we’ve got a lot more room to the downside, especially with the Fed being restrictive,” Minerd said.

Elsewhere, in a webinar on the blockchain, MasterCard’s Vice President for new product development and innovation Harold Bosse said on Monday that the mass adoption of crypto will happen sooner rather than later. He noted the fact that millions are already using and transferring crypto around the world.

DeFi, NFT Update

The market cap of the top 100 Decentralised Finance (DeFi) tokens, according to CoinGecko data, was around $53.3 billion on Wednesday, roughly in line with where it has been for the past two weeks, after the collapse from above $100 billion at the start of the month following the collapse of Terra’s LUNA and UST tokens.

Speaking of, Terra’s native governance token LUNA continues to move in and out of the top ten tokens by market cap. On Wednesday, it was number nine, with a market cap of about $1.1 billion. Terra 2.0 will be launched soon (a new blockchain without a stablecoin). Terra has probably been able to maintain some market cap despite its recent collapse owing to the (former) strength of its user base, developer community and wealth/variety of dApps.

In terms of trade value locked (TVL) across the entire DeFi space, that remained stable near $100 billion on Wednesday according to DeFi Llama data. Tron remains a bright spot, with TVL at its highest since the end of 2021 around $5.5 billion, up about $1.5 billion since the start of the month.

Turning now to the Non-fungible token (NFT) space, the bear market continues. The price floor to bag one of the Bored Ape Yacht Club (BAYC) NFTs fell under $180,000 on Wednesday (down 3.4% in the last 24 hours), according to NFT Price Floor data and is nearing its lowest levels since November 2021 and down over 50% from April highs above $400,000. BAYC is the most valuable collection with a floor cap (i.e. an implied minimum value of the entire collection based on the current price floor) of about $1.79 billion.

In major DeFi news, Uniswap, the largest Decentralised Exchange (DEX), surpassed $1 trillion in all-time trading volume on Tuesday, according to an announcement on Twitter. The company has “onboarded millions of users to the world of DeFi”, “introduced fiar and permissionless trading” and “lowered the barrier to liquidity provision”, it said.

The DEX was launched on the ethereum blockchain back in 2018 and has achieved the $1 trillion in transacted volume despite a relatively small userbase (just 3.9 million wallets on the DEX according to data from Uniswap Labs as of Tuesday). Analysts say that highlights the fact that the DEX has plenty of room left to grow.

Elsewhere, cryptocurrency exchange-traded product issuer 21Shares on Tuesday unveiled its latest fund, the USD Yield ETP (ticker USDY). The product aims for a 5.0% yield takes US dollars and lends them out to counterparties within the DeFi space against a minimum of 110% collateral in either bitcoin and ethereum.

“We see this ETP as a useful tool for investors to navigate market volatility and stay invested through complex market conditions — like today’s,” 21Shares President Ophelia Snyder said on Tuesday. “While investors grapple with inflation, fluctuating interest rates and a range of economic pressures, this product is a first-of-its-kind way for investors to both gain maximum exposure to risk-adjusted yield and preserve liquidity in their portfolios”, Snyder continued.

Crypto Flows

Exchange wallets saw a net inflow of just under $200 million worth of bitcoin in the last 24 hours as of Wednesday morning, data from on-chain analytics firm Glassnode showed. Meanwhile, exchange wallets saw a net outflow of around $70 million over the same time period, whilst there was a net inflow of about $141 million in Tether’s US dollar-pegged stablecoin USDT.

Regulatory Landscape

In wake of the collapse of Terra’s LUNA and UST stablecoin tokens, South Korea is prepared to introduce legal safeguards that would prevent a recurrence. As many as 280,000 South Koreans were allegedly affected by UST’s de-pegging and the subsequent collapse in value of Terra’s LUNA token.

“We need to make exchanges play their proper role, and toward that end, it is crucial for watchdogs to supervise them thoroughly,” said People Power Party representative Sung Il-jong during an emergency seminar of the National Assembly on Tuesday. “When exchanges violate rules, they should be held legally responsible to ensure that the market functions well without any troubles”.

Elsewhere, Michael Hsu, US acting director of the Office of the Comptroller of the Currency, said at a Blockchain Summit in DC that the recent collapse in value of Terra’s stablecoin UST should “serve as a wake-up call and an opportunity to reset and recalibrate the problems the industry is trying to solve”.

Hsu said it was promising that there was no wider contagion from the event, noting that “no banks are under stress, or even rumored to be under stress due to crypto exposure”. However, Hsu expects stablecoins to continue to grow in popularity, and with them, financial risks to the broader economy.

Separately, the Central African Republic (CAR), which announced bitcoin as a legal form of tender just one month ago, just announced a crypto initiative designed to attract crypto-related business investment. The so-called Sango Project will see the creation of a Digital Nation Bank and associated crypto wallet that will be compatible with layer-two bitcoin solutions such as the Lightning Network, thus facilitating transactions in bitcoin.

According to CAR President Faustin-Archange Touadéra, “the formal economy is no longer an option” given that “an impenetrable bureaucracy is keeping us stuck in systems that do not give us a chance to be competitive”.

This article was originally posted on FX Empire

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