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Morning Crypto Briefing, May 24: Bitcoin dips back below $30,000, traders eye WEF crypto commentary

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Key Points

  • After cryptos dipped on Monday, a turn for the worse in global risk appetite on Tuesday is preventing a rebound.

  • Bitcoin was last trading in the low $29,000s, within recent ranges ahead of key US data and more Fed speak.

  • IMF MD Georgieva said Terra’s recent collapse shouldn’t deter people from crypto.

State Of The Market

Despite US equity markets at the time holding up well on Monday, crypto market sentiment took a turn for the worse. While S&P 500 index closed Monday trade with gains of nearly 2.0%, total crypto market capitalization dropped over 3.0% to back below $1.25 trillion. Reading too much into one day of divergence/correlation breakdown probably isn’t too wise.

On the month, both crypto and US equities both still trade with substantial losses and for the same reasons. These include fears about central bank tightening and liquidity withdrawal and fears about high inflation and slowing US (and global) economic growth amid continued geopolitical and pandemic-related challenges.

Back to the recent price action, Wall Street’s Monday optimism has been cut short by a downbeat earnings release from Snap, which is weighing on sentiment across US tech and has seen S&P 500 futures drop nearly 1.5% in pre-market trade, meaning the majority of Monday’s gains have been given back. Snap delivered a new profit warning on guidance it only issued one month ago, citing a further deterioration in the macro environment, adding to the market’s fears about US economic weakening after last week’s ugly earnings from big US retail names like Walmart, Target and HomeBase.

This is seemingly for now preventing cryptocurrencies from mounting a comeback on Tuesday, with total market cap trading roughly flat on the day in the $1.24 trillion area. That leaves total crypto market cap still well within recent $1.20-1.35 trillion ranges of the past two or so weeks.

In terms of what Tuesday has in store for crypto traders, the macro themes of US growth and central bank policy will be in focus with the release of flash US PMI survey data for May at 1345GMT followed by some pre-recorded remarks from Fed Chair Jerome Powell at 1620GMT.

The survey data is expected to show that economic activity in the US has continued to expand at a robust, albeit slightly weaker pace in May versus April, despite ongoing high inflation, while Powell is expected to reiterate his hawkish message from last week. Traders will recall that he doubled down on hawkish rate guidance for two or more further 50 bps rate hikes and rates reaching so-called “neutral” by the end of the year, as well as pledged to “not hesitate” to take rates higher in 2023 if still needed (i.e. if inflation still remains too high).

In the meantime, it would probably be wise for crypto traders and investors to monitor crypto-related commentary at the World Economic Forum in Davos, Switzerland, in case there is commentary about new regulations plans, etc., which could be market moving.

Price Action

Bitcoin was last trading a little higher on the day in the low $29,000s, having briefly dipped back below $29,000 on Monday from earlier weekly highs in the upper $30,000s. On the week, the world’s largest cryptocurrency by market cap (of around $555 billion at the time of writing) was trading lower by just over 3.0%, on course for a record ninth consecutive week in the red.

Of course, there is still plenty of time for bitcoin to recover into the green on the week, but unless there is a substantial turn for the better in the macro-environment (which feels unlikely in the near future), it will be tough for bitcoin to break back to the north of its recent mid-$28,000s to mid-$31,000s range.

Ethereum was last trading in the upper $1,900s, having dipped below $2,000 on Monday. Like bitcoin, ethereum continues to trade well within recent ranges and is down on the week by about 3.5%, taking its market cap to just under $240 billion.

In terms of the major altcoins, Tron has been the best performer on the week so far, with TRX/USD higher by about 4.0% despite the broader market drop. Avalanche’s AVAX and Solana’s SOL are the worst performers thus far on the week, with the latter down about 9.0% and SOL down closer to 6.0%.

Crypto News

The world’s largest cryptocurrency exchange Binance on Monday enabled a “sell crypto for fiat” feature using debit and credit cards. The company is also reportedly preparing to launch payment and trading services in Dubai and Bahrain as soon as next month.

Well-known US retail gaming store GameStop, which garnered fame in 2021 as its stock price enjoyed massive gains/experienced huge volatility as one of a few so-called “meme stocks”, announced this week that it has launched a new ethereum-based crypto wallet that supports NFT. GameStop will soon be launching an NFT marketplace.

Fashion brand Balenciaga on Monday announced that it will now be accepting bitcoin and ethereum as payment methods across selected stores.

Amid mounting accusations against Terra blockchain developer TerraForm Labs and Terra’s associated non-profit the Luna Foundation Guard of fraud and running a Ponzi scheme, police in South Korea have asked exchanges to freeze the Luna Foundation Guard’s ability to withdraw corporate funds. South Korea has accused TerraForm labs of owing as much as $78 million in taxes and will reportedly be holding the country’s exchanges accountable for the damages caused to investors by the collapse of the Terra ecosystem two weeks ago.

DeFi, NFT Market Update

The market cap of the top DeFi governance and stablecoin tokens remains stable within recent ranges at around $52.7 billion on Tuesday.

The total trade value (TVL) locked across all major Decentralised Finance (DeFi) protocols remains steady near $100 billion, data on DeFi Llama showed on Tuesday. TVL on the ethereum blockchain continues to steadily decline, down from nearly $100 billion earlier in the month prior to the DeFi capital outflow triggered by Terra’s collapse.

TVL on the Binance smart chain has remained stable in an $8-9 billion range over the past few days, though is down from around $12 billion at the start of the month. The Tron blockchain now has the third-largest TVL of around $5.3 billion, up from about 4.0% at the start of the month.

Tron’s JustLend protocol offers a 30% yield on Tron’s native algorithmic stablecoin USDD, and has as such been attracting plenty of demand. However, many fear that USDD is vulnerable to a depeg event just like Terra’s UST, given the similarities of the mint/burn mechanism both stablecoins use (or used) to maintain the peg.

Looking at the NFT marketplace, the price floor of the top NFT collections are not showing any signs just yet of recovering to their peaks printed earlier in the year. The price floor for one of the 10,000 Bored Ape Yacht Club NFTs was last around $185,000, just above the 13 May lows around $174,000 and in line with levels of recent weeks, but well below record peaks hit at the start of the month above $400,000.

Similarly, the price floor for one of the 10,000 CryptoPunk NFTs on Tuesday fell back below $100,000 for only the second time since last August. At the start of the month, the price floor was in the $175,000 region.

Crypto Flows

According to Glassnode data, there was a net inflow of about $67 million worth of bitcoin to exchange wallets in the last 24 hours as of Monday morning, which is not too unsurprising given recent risk-off flows. Investors tend to move their crypto into exchange wallets to then be sold during times of market stress.

According to Watcher.Guru, the amount of bitcoin held on top exchanges hit its lowest level since November 2020 on Tuesday. That could be a sign that much of the “weak hand” selling of bitcoin may, for now, be over.

Meanwhile, there was also a net inflow of about $92 million worth of ethereum into exchange wallets over the same time period, Glassnode data showed.

Amid Monday’s market drop, $146 million worth of crypto long positions were liquidated on crypto exchanges, CoinGlass data showed. That was the largest liquidation of bullish positions since last Friday, when $570 million worth of long positions were liquidated.

Regulatory Landscape

Political and business leaders from around the world have this week jetted into Davos, Switzerland for this year’s (delayed) annual meeting of the World Economic Forum (WEF) and crypto has been a big topic. International Monetary Fund (IMF) Managing Director Kristalina Georgieva said that the collapse of Terra’s algorithmic stablecoin UST shouldn’t deter people from crypto, as the space still has the potential to offer faster services at lower cost, as well as promote greater financial inclusion.

IMF Deputy Managing Director Gita Gopinath was a little more reserved in her remarks on crypto. She said she has maintained her distance from the sector which she deems as too risky, and noted that crypto is far from an “easy return” market. Various crypto industry leaders and CEOs (including of Circle and Coinbase) are attending this year’s WEF.

Separately, Bank of France head and influential European Central Bank policymaker François Villeroy de Galhau was out with further scathing criticism of crypto on Monday, saying that “citizens have lost trust in crypto”. “Cryptocurrencies are not a reliable means of payment… Someone must be responsible for the value and it must be accepted universally as a means of exchange,” he added.

ECB policymakers have generally been critical of crypto and openly favor introducing some sort of Central Bank Digital Currency instead. Indeed, in a report released by the bank on Tuesday, the ECB warned that as more and more financial institutions engage with crypto and digital assets, there is an increased risk of “spillover to the wider economy”.

Elsewhere, Texas Senator Ted Cruz said in an address at a conservative think tank event on Monday that he believes in bitcoin and that he “wants Texas to be the oasis on planet Earth for bitcoin and crypto.”

Finally, the IMF said this week that they are assisting El Salvador in compiling statistics to measure the success of the nation’s adoption of bitcoin. El Salvador made bitcoin a legal form of tender in September 2021, a move that the IMF was highly critical of at the time.

This article was originally posted on FX Empire