Crypto Ecosystem Replace #15: Could 23, 2022

Bitcoin momentarily misplaced its 2021 bull market assist by dropping to $26,000 on Could 12. Since then, it has climbed again to $30,000 and has been consolidating round that worth stage.  

Nonetheless, Bitcoin is much from being out of the woods since there isn’t any substantial assist till the earlier all-time excessive worth at $20,000 if the present $28,000-$30,000 vary is misplaced. A significant level of concern is that though the US greenback index is present process a correction proper now, there has nearly been no response within the worth of Bitcoin, which hints on the weak point in Bitcoin’s pattern. 

Outflows from altcoins are additionally persevering with following the UST/Terra debacle. Ethereum began to underperform Bitcoin for the primary time because the 2018/19 bear market hinting at a brand new uptrend within the dominance of Bitcoin. Regardless of Tether’s just lately printed audit report which confirms its claimed $82 billion reserves, confidence in altcoin and stablecoin markets stays low. 

On this difficulty of the crypto ecosystem replace, we’ll focus on the alternate inflows of Bitcoin, in addition to the Bitcoin worry & greed index and a short technical evaluation. We may also present an replace on Ethereum and the UST/Terra ecosystem, together with Tether’s current audit.   

Bitcoin deposits to exchanges 

Following the UST stablecoin’s de-pegging on Could 8, the Luna Basis Guard (LFG), a non-profit group that backs the Terra blockchain ecosystem, offered all of its Bitcoin reserves (80,394 BTC) to defend UST’s peg. This meant depositing bitcoins to cryptocurrency exchanges. As you’ll be able to observe within the chart under, alternate balances surged by as a lot as 86,000 bitcoins from their early Could backside ranges.

Supply: Glassnode

Will increase in alternate inflows can counsel that traders are interested by promoting their Bitcoin holdings by depositing them to exchanges. This usually occurs shortly earlier than and after cycle tops, in addition to earlier than capitulation occasions. 

Though the Bitcoin stability on crypto exchanges has been declining since January 2022, the sudden turnaround in Could triggered by the LFG sell-off could catalyze a brand new uptrend except market sentiment turns constructive quickly. Since Could 2022 doesn’t correspond to a Bitcoin cycle high, this potential new uptrend within the BTC alternate stability could open the gates for a brand new Bitcoin downtrend. 

Bitcoin Concern and Greed Index

Bitcoin’s worry and greed index measures market sentiment. Excessive greed often precedes cycle tops whereas excessive worry precedes market bottoms. 

Supply: Different.me

The Concern and Greed Index is at the moment at ten which corresponds to a traditionally low stage and means excessive worry. As you’ll be able to see within the chart under, this index nearly all the time bottomed out at ten over the past 4 years. This means that there’s a market construction at this stage and that the Bitcoin backside or capitulation might be very close to if it has not bottomed out already.

Supply: Different.me

Bitcoin worth evaluation

In the course of the peak of the UST/Luna disaster, Bitcoin fell to as little as $26,000. Whether or not Bitcoin has one other leg down largely relies on the already deteriorated market sentiment, in addition to the following motion of the S&P 500 inventory index. 

1. S&P 500 inventory index

If the S&P 500 inventory index within the U.S. closes a buying and selling day under the vital 3,850 assist, it may set off a sell-off to the following main assist at 3,230 as you’ll be able to observe within the charts under.

This is able to imply an extra 17% drop from the present worth, which may, traditionally talking, create as giant as an roughly 30% drop in Bitcoin’s worth.

S&P 500 each day worth chart. Supply: Tradingview

The index fell to as little as 3,810 on Friday, Could 20 however managed to shut the day above 3,900. The S&P’s strikes will likely be very vital this week which may additionally impression the cryptocurrency market. 

2. Bitcoin’s short-term construction

Within the meantime, Bitcoin wants to guard its short-term market construction at $28,700. 

A four-hour closing under this stage, if accompanied by new detrimental developments amongst cryptocurrencies and sell-offs within the S&P, may set off panic out there and trigger capitulation for Bitcoin.

Bitcoin/U.S. Greenback worth chart on a 4-hour time-frame    

3. Overbought each day stochastic RSI

Throughout bear markets, momentum indicators can get shortly overbought on greater time frames, just like the each day time-frame. Regardless of falling from $42,000 on April 21 to $26,000 by Could 12, Bitcoin’s stochastic RSI has already change into overbought on the each day chart with a mere 15% bounce from the $26,000 backside (see the chart under).

That is typical bear market habits in cryptocurrencies which may counsel that Bitcoin’s current bounce could also be nearing a high quickly and that the worth could not have the ability to break above its present horizontal vary (the $32,000 resistance) because it runs out of additional momentum.  

Bitcoin/U.S. Greenback each day worth chart with the stochastic RSI indicator  

4. The US Greenback index

The US Greenback index, DXY, was rejected on the 105 resistance stage on Could 13 and the worth has been dropping since then. Though the index fell to 102 very quickly on the week of Could 16, Bitcoin confirmed nearly no response within the meantime. Usually, such a steep drop within the DXY would set off a 20-25% rally within the Bitcoin worth. As an alternative, Bitcoin may solely vary horizontally between $29,000 and $31,000 with its each day stochastic RSI already turning into overbought. 

This means that the Bitcoin pattern is weak and that it might have issue breaking out of its present horizontal vary to the upside. 

Ethereum worth evaluation 

Ethereum carried out a lot better than Bitcoin throughout 2021, producing as a lot as 4 occasions extra returns as of December 2021.  

Thus far in 2022, Ethereum has failed to succeed in the 0.1 historic resistance when it comes to the Ethereum/Bitcoin worth parity. It additionally couldn’t escape of the rising channel that it has been following for over a 12 months (see the chart under).  

Rising channels are sometimes confused with bull flags as a result of in addition they have a pole. Nonetheless, in bull flags, the flag is tilted downwards whereas rising channels face upwards, which usually tend to break downwards throughout a macro downtrend.  

Throughout Bitcoin’s March 2022 rally, Ethereum failed to extend greater than Bitcoin and made a decrease excessive worth on the Ethereum/Bitcoin chart (circled in orange within the chart under). 

Ethereum/Bitcoin parity chart on a weekly timeframe

The Ethereum/Bitcoin parity is on the very backside of the channel assist now. Shedding the channel assist on account of a Bitcoin crash or one other black swan occasion may trigger the parity to start out a brand new, stronger downtrend that would go as little as the following main assist at 0.04. 

Ethereum/Bitcoin parity chart on a each day timeframe

Ethereum recorded a extremely bearish rejection candle on Could 11 simply when it was trying a breakout to the upside (see the chart above). The UST/Luna debacle introduced a sudden and powerful sell-off on the Ethereum/Bitcoin parity. Such robust rejections throughout the identical buying and selling day typically provoke a brand new, stronger pattern to the draw back.    

Given the present outlook of the altcoin market as a consequence of the UST/Terra turmoil, tides could also be turning for Ethereum except the continued merge of the Ethereum blockchain creates a constructive catalyst and new pleasure out there.

The proposed Terra fork

Luna printing stopped on Friday, Could 13 after 6.5 trillion tokens had been put into circulation and the token worth bottomed out at round $0.00001. Since then, debates to avoid wasting the Terra ecosystem have been flooding the crypto house.

Voluntary coin burns by particular person traders, compensating small traders from the Luna Basis Guard, and issuing a brand new stablecoin backed with actual property are among the solutions which were made.

The newest dialogue to revive the challenge is to create a fork of the Terra blockchain. 

Terra’s CEO and co-founder Do Kwon has just lately proposed forking the Terra community into a brand new chain. 

Based on the proposal, the fork would create one billion new tokens to distribute amongst traders to incentivize them to remain within the Terra ecosystem whereas the previous chain would change into often known as “Terra Basic” and the unique Luna tokens would change into “Luna Basic”. 

Terraform Labs is at the moment having a ballot to measure the investor sentiment in the direction of a fork of the present blockchain. Based on the ballot’s outcomes so far, 65% of the voters voted in favor of the fork. 

Then again, a current vote on Twitter exhibits a contradictory end result to the Terra discussion board ballot. The vote asks the Luna neighborhood whether or not they need to fork Terra or burn Luna tokens and 93% of the respondents thus far have voted in favor of a Luna token burn. 

Whether or not the Terra administration will heed the Terra neighborhood or the Twitter neighborhood, or provide you with one other answer stays to be seen within the coming days.

Tether’s current audit report

In the course of the chaos of the UST’s de-pegging information, the market additionally grew to become petrified of Tether’s peg which brought on the biggest stablecoin to briefly lose its peg. The scale of the Tether (USDT) market cap was 4 occasions bigger than that of UST, so a meltdown within the worth of USDT poses a way more critical threat to the cryptocurrency market’s existence.

Not like UST although, the de-pegging of Tether was a short-lived one. Though the worth of USDT briefly dropped to a low of $0.96, it recovered inside 36 hours. 

To guard the $1 peg, the Tether group introduced on Could 12 that verified clients can redeem their US Greenback deposits from the Tether treasury in return for USDT tokens they maintain. Thus far, $8 billion value of USDT has been redeemed and faraway from circulation which dropped the full USDT provide from $82 billion to $74 billion. 

With the cooling down of the UST disaster, USDT redemptions additionally got here to a halt securing the Tether ecosystem for now. To regain the boldness of its traders and the general cryptocurrency market, the Tether administration additionally launched an audit report that verifies its consolidated reserves. 

The audit report could come as a aid to USDT holders as there was numerous uncertainty about how Tether backs itself. This was exacerbated by the SEC’s subpoenas prior to now and the excessive ratio of much less liquid industrial papers in Tether’s reserves as of the top of 2021. 

Based on the audit carried out by the unbiased accounting agency, MHA Cayman, the full property of Tether Holdings are a minimum of $82,424,821,101, which is considerably greater than the worth of issued USDT digital tokens in circulation ($74 billion). This implies Tether’s reserves towards issued digital tokens exceed the quantity required to redeem them.