Crypto Meltdown | BetaShares

Crypto meltdown

BY Justin Arzadon | 17 May 2022
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Bitcoin and crypto markets suffered one of the worst weeks in recent memory with sceptics declaring (again) that bitcoin and crypto are dead. The website https://99bitcoins.com/bitcoin-obituaries/ tallies Bitcoin ‘obituaries’ – to qualify, the content of an article “must be explicit about the fact that Bitcoin is or will be worthless”, and must be “produced by a person with a notable following or a site with substantial traffic”. According to these criteria, Bitcoin has died 448 times since inception.1

Bitcoin fell to the US$26K level, a price not seen since December 2020, before recovering to $29,673 at the time of writing.

Ether suffered greater losses, down -20.68% vs bitcoin’s -14.28% over the last seven days.

Bitcoin’s market cap fell to $565B, while the total crypto market dropped to $1.27T. Bitcoin’s market dominance shot up to 44.4%

Price High Low Change from previous week
BTC (in US$) $29,673 $34,222 $26,350 -14.28%
ETH (in US$) $2,029 $2,528 $1,748 -20.68%

Source: CoinMarketCap. As at 15 May, 2022. Past performance is not indicative of future performance. Performance is shown in U.S. dollars and does not take into account any USD/AUD currency movements.

Source: Glassnode. Past performance is not indicative of future performance.

News we are keeping an eye on

Contagion from the woes of what was the third largest stablecoin, TerraUSD (UST), spread across the cryptocurrency market after losing its peg to the US Dollar, causing massive selloffs within the sector, and wiping almost $320 billion in market cap over the course of a week. UST is an algorithmic stablecoin pegged to US$1, which fell as much as 86% and has been unable to regain its peg.

Algorithmic stablecoins differ from collateral-backed 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 Terra (LUNA). The system was designed to automatically maintain its peg to the US dollar, with the failure leading to a systematic devaluing of UST, while LUNA tokens began to be minted at an unprecedented rate. LUNA was a Top 20 coin and as of 6 May 2022, was trading above $80 with a market cap of $40B, however has now lost over 99.99% of its value, and is currently trading at less than 1 cent. The blockchain was temporarily halted, but has resumed trading on exchanges once again.1

Although TerraUSD (UST) stablecoin failed to hold its peg citing a weakness in the structure, there has been a suggestion (unsubstantiated) that it was also subject to a targeted and coordinated short attack by institutional managers during an optimum time of weakness in the markets.2 On-chain analysis shows that two entities in a 24-hour period sold over $400 million of UST from the Anchor protocol which is the main yield protocol of the Terra ecosystem, causing a cascading liquidation effect into the whole ecosystem.

Australia finally listed three cryptocurrency ETFs late last week. Exposures to Bitcoin and Ethereum listed on the CBOE on Thursday, amidst the crypto market turmoil. Investor participation in the launch was lacklustre, with the three ETFs trading a total of ~A$2 million. Given how tough the year has been for growth assets, and given the current macro environment and cryptomarket volatility, the subdued launch did not come as a surprise.

On-chain metrics

Bitcoin (BTC): Realised Loss (USD) denotes the total loss (USD value) of all moved coins whose price at their previous movement was higher than the price at the current movement. The indicator can reflect investor sentiment at various price levels and large drawdowns.

Looking at data from on-chain analytics company Glassnode, over US$12.2 billion was sold from 9-13 May realising losses, and only twice over the last 12 months have investors realised larger losses than the $3.3 billion lost on 11 May. The signal does not necessarily indicate the bottom or a reversal, but does reflect a level of investor capitulation. This evident capitulation marks a short-term low in the price and may result in a relief rally in the short-term, although it is important to be aware that multiple capitulation events can occur before a true bottom.

Source: Glassnode

Bitcoin (BTC): Percent Balance on Exchanges shows the percent supply held on exchange addresses. The indicator allows traders to track inflow and outflow of BTC on exchange. Inflows to spot exchange can indicate that investors are transferring BTC on exchange for selling, while outflows out of the exchange can indicate that investors are sending BTC outside for storage.

According to the chart, a spike of large inflows to exchanges took place over the last week, which usually suggests that participants may be getting ready to exit the market by selling their BTC, and could be interpreted as preparation for a longer downturn.

Source: Glassnode.

Altcoin news

Stablecoin Tether (USDT), the largest stablecoin in the crypto ecosystem, also showed signs of stress during the TerraUSD (UST) meltdown. Tether’s USDT traded as low as $0.9485, however Tether chief technology officer, Paulo Ardoino, offered perspective given the technical differences between USDT and algorithmic stablecoins: “Unlike these algorithmic stablecoins, Tether holds a strong, conservative and liquid portfolio that consists of cash and cash equivalents, such as short-term treasury bills, money market funds and commercial paper holdings from A-2 and above rated issuers.”4

Tether has been through many black swan events in the past and even though USDT traded below $1 on exchange, on its website Tether announced that they would continue to honour redemptions normally, with verified customers (in allowed jurisdictions) able to redeem USDT on Tether.to for US$1. In a 24 hour span, Tether reportedly honoured over 300 million USDT redemptions and was already processing more than 2 billion the following day, without issue.5

Investing in crypto assets or companies servicing crypto-asset markets should be considered very high risk. Exposure to crypto assets involves substantially higher risk when compared to traditional investments due to their speculative nature and the very high volatility of crypto-asset markets.

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.

Any investment in crypto assets or crypto- focused companies should only be considered as a very small component of an investor’s overall portfolio.


1. https://99bitcoins.com/bitcoin-obituaries/

2. https://fortune.com/2022/05/13/terra-ust-stablecoin-crash-suspicious-potential-attack-george-soros/

3. https://www.afr.com/companies/financial-services/australian-crypto-etfs-fizzle-on-debut-as-bitcoin-tanks-20220512-p5akpr

4. https://cointelegraph.com/news/usdt-dollar-peg-wobbles-as-markets-continue-to-struggle-tether-cto-weighs-in

5. https://tether.to/en/tether-continues-to-honour-all-redemptions-from-verified-customers-during-market-volatility-on-track-to-process-2bn-today


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.

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