Following a tumultuous week, Bitcoin and the rest of the crypto market was quite subdued over the last seven days. Bitcoin traded in a fairly tight range, and if the price finishes lower for the weekly close, it would be eight consecutive losing weeks, which will be the first time in its history. At the time of writing, bitcoin is trading at US $29,426.
Ether fell, down -2.65% vs bitcoin’s -0.84% over the last week.
Bitcoin’s market cap is at $560B, while the total crypto market is at $1.26T. Bitcoin’s market dominance remained at 44.4%
|Price||High||Low||Change from previous week|
|BTC (in US$)||$29,426||$31,308||$28,702||-0.84%|
|ETH (in US$)||$1,974||$2,147||$1,907||-2.65%|
Source: CoinMarketCap. As at 22 May, 2022. Past performance is not indicative of future performance. Performance is shown in US Dollars and does not take into account any USD/AUD currency movements.
Source: Glassnode. Past performance is not indicative of future performance.
News we’re watching
Bank of America talks crypto
Bank of America (BOA), the second-largest U.S. bank, released a note last week. The analysts, led by Alkesh Shah, explained to investors that recent underperformance by the asset class was due to headwinds faced by traditional asset classes. These include surging inflation, higher interest rates and the increased risk of a recession. It stated that investors should also be aware that the cryptocurrency ecosystem is an “emerging tech asset class and the tokens that power the ecosystem trade like high growth, speculative risk assets.”
BOA also explained that the collapse of the Terra network was due to its prioritization of UST’s adoption over its price stability. UST is not backed by traditional assets and the loss of its peg shows the durability of the wider stablecoin market – the largest stablecoins maintained their pegs. The note said stablecoin regulation was expected to lead to increased disclosures for algorithmic stablecoins, but that an outright ban seemed unlikely. It would be “premature” and could slow the ecosystem’s growth.1
Circle CEO reassures stablecoin holders
Two of the largest stablecoin projects by market cap, Tether (USDT) and USD Coin (USDC) are centralised, and the companies guarantee the stablecoin are redeemable for the $1 parity to the US Dollar. They achieve this by holding reserves that cover the funds for circulation.
Following the collapse of algorithmic stablecoin, TerraUSD (UST) project, Circle CEO, Jeremy Allaire, expressed on Twitter that Circle was “ramping up our efforts” when it comes to USDC “trust and transparency.”
According to a blog from Circle’s website, a number of key facts were laid out including “USDC has always been backed by the equivalent value of US Dollar denominated assets; USDC reserves are kept in the custody of leading U.S. financial institutions, including BlackRock and Bank of New York Mellon and the USDC reserve is held entirely in cash and short-dated U.S. government obligations, consisting of U.S. Treasuries with maturities of 3 months or less”.2
CommBank pauses crypto purchases through the app
Commonwealth Bank has paused the rollout of buying and selling cryptocurrencies through its app. After announcing a pilot program in November, those on the pilot have been unable to trade. CEO Matt Comyn said that he was still waiting on regulatory clarity before advancing to the next stage and that the bank was awaiting the result of the Federal election on May 21. If a new government comes into power, it could spell broad changes in the crypto regulatory landscape. He said, “Our intention still, at this stage is to restart the pilot, but there is still a couple of things that we want to work through on a regulatory front to make sure that that is most appropriate.”3
Bitcoin (BTC): Realised Price [USD]
Realised Price, or average cost basis is the realised cap divided by the current supply. The realised price is interesting to look at as it can act as a strong support level. As investors trend towards their cost basis and/or slightly below it, the tendency is to sell in order to limit or prevent further losses, which becomes a capitulation point.
Looking at data from on-chain analytics company Glassnode, the current realised price sits at $23,818 or ~18% below where BTC trades at the time of writing. This indicates that the BTC price can still drop further before broader capitulation. But historically, this level has tended to provide reasonable support.
Bitcoin (BTC): Accumulation Trend Score
Accumulation Trend Score is an indicator that reflects the relative size of entities that are actively accumulating/distributing their BTC holdings on-chain. A higher score closer to 1 reflects that over the last month, big participants (or a big part of the network) have been accumulating coins. A lower score closer to 0 reflects that over the last month, big participants have not been accumulating coins or have been selling them. This provides insight into who is behind the price action, whether they are big players who are able to move the price in a sustained way, or small players who usually struggle to sustain positive price action over longer time periods.
According to the chart, going back to May 16th, values have been very close to or at 1, indicating that larger entities and/or a big part of the network have been stepping in to buy BTC at the lower levels as the price gets closer to the realised price. It is important to see this trend continue at these lower levels or the price could easily start to fade without sustained buying from the larger cohorts.
Investigations have started into the crash of TerraUST (UST) and Terra (LUNA). Legal documents obtained from the country’s Supreme Court Registry Office reveal that the Busan headquarters and Seoul offices of the Terraform Labs Korea Corporation were slated for dissolution during a general shareholders meeting on April 30. Their demise was actioned on May 4 and May 6, respectively. The events in LUNA and UST on May 10 make this timing look suspicious.4 UST is an algorithmic stablecoin that lost its peg to the US Dollar and crashed LUNA along with it. An algorithmic stablecoin differs from collateralized stablecoins because they have no reserves; they hold their value based on an algorithm that automatically strikes a balance between the stablecoin and a partner coin, in this case, LUNA.
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Investing in crypto assets or crypto-focused companies is not suitable for all investors and should only be considered by investors who (i) fully understand their features and risks or after consulting a professional financial adviser, and (ii) who have a very high tolerance for risk and the capacity to absorb a rapid loss of some or all of their investment.
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Off the Chain will be published every Tuesday, and provide the latest news on bitcoin and the rest of the crypto market along with analysis and insights into the world of crypto.
It provides general information only and is not a recommendation to invest in any crypto asset, crypto-focused company or investment product.