May 9, 2022
LUNA Falls While Fighting to Keep UST Afloat
Dear Secret BTC Agent,
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| By Marija Matic |
Bitcoin (BTC, Tech/Adoption Grade "A-") has been range-trading for months. And it finally broke through … to the downside. Now, the No. 1 crypto by market cap has fallen all the way to $30,400, though it has bounced slightly to over $31,500.
That means it's now lost more than half its value (54%) from the November 2021 peak near $67,000. Interestingly, BTC has now reached the price level that corresponds to MicroStrategy's average price per Bitcoin.
So, what's causing prices to plummet? It's a combination of things, but essentially, it boils down to a loop of fear and downside volatility in light of Bitcoin's high correlation to the Nasdaq following the Federal Reserve's latest rate hike.
Initially, the market seemed to have priced in last week's interest rate hike as prices pumped higher. But trading since then shows that wasn't the case. The Fed's decision caused major volatility across the markets — including crypto.
Where does that leave us now? Well, BTC has broken its January low of $32,900. After this level, the next major support would be June's low of $28,800.
The BTC/USDT daily TradingView chart shows BTC breaking down from its months-old trend (purple line) last week and is now trading below January's low (blue line), with an eye on $28,800:
According to data from Glassnode, weakness has also appeared across exchange-traded fund (ETF) product flows, stablecoin supply, which is contracting — especially USD Coin (USDC) — and in investor urgency to deposit coins to exchanges.
And it's that second issue that's of concern. The major unknown right now is how the largest decentralized stablecoin, TerraUSD (UST), will react to this volatility and bearishness.
UST is supposed be pegged to the U.S. dollar. But it dropped to $0.932 today, its largest drop ever, causing liquidations across the board.
Terra (LUNA, Tech/Adoption Grade "D") is fighting to keep the peg, even going so far as to sell or lend its BTC reserves to stabilize UST. But that means LUNA is getting the brunt of the fallout.
It's lost over 30% of its value today, reaching $44 at one point. Luckily, it's since bounced back to over $50. Now the major unknown is where they've sent $42,000 BTC from their reserve wallet a few hours ago. The plan was to loan it out, so it's disappearance isn't too much of a surprise, but some are wondering if it's been sold in light of today's action.
So, I'm hoping it's been lent out, as selling this amount of BTC would be very bearish for the market. But we'll have to wait and see.
This suffering hasn't been contained to UST by any means. But, as the most important decentralized stablecoin, it's at the top of my — and many on our team's — list of assets to follow closely during this volatility.
As for the others — Tether (USDT), Binance USD (BUSD), Dai (DAI) and USDC — their aggregate supply has increased by an astonishing 2,866% to $158 billion in just two years. However, they've seen contractions since the start of April. Their aggregate supplies have decreased by $3.28 billion, with USDC seeing the largest decline at $4.77 billion. Interestingly, though, USDT continued to expand until recently.
Does all this mean crypto is seeing its end days?
No, not even close. Those who have only joined the space since its debut to the mainstream in 2020 and 2021 won't know … but those of us who've been here for a while understand that volatility like this is part and parcel for the still evolving and growing crypto sphere.
So it's not surprising to me to hear some favorable news over the past few days, like Fidelity and BlackRock launching blockchain, crypto and metaverse exchange-traded funds, Goldman Sachs offering its first Bitcoin-backed loan facility, Meta Platforms (FB) partnering with Polygon (MATIC, Tech/Adoption Grade "B") for their web3 projects and so on.
While these headline-making announcements flew under the radar in light of the volatility — and of policymakers clamoring to crack down on the "Wild West" of crypto — it goes to show smart money still recognizes the potential and wants to get in … even as others are getting scared away.
Notable News, Notes and Tweets
What's Next
While many are worried about Bitcoin's recent fall, others are bottom-fishing for the best stocks and cryptos. Since this tactic is risky, it's impossible to time the exact bottom.
That's why smarter investors are implementing a dollar-cost-averaging (DCA) strategy to take advantage of discount prices without hanging their hat on any one level being the low before it can be confirmed.
(If you'd like a refresher, my colleague Chris Coney broke down DCA and let you in on a neat decentralized finance (DeFi) tool to help you apply it in a recent Sunday Special.)
And this isn't crypto exclusive. Among the largest investors following this strategy are Warren Buffett's Berkshire Hathaway, which just went on its biggest stock-buying spree in at least a decade.
Goldman Sachs analysts are also expecting buybacks from S&P 500 companies to grow by 12% in 2022 and remain the largest source of demand for U.S. equities. In fact, according to them, buyback authorizations by corporate boards are running 22% above 2021's record pace, when they totaled $1.2 trillion for the full year.
It's always worth seeing how the smart money reacts to events like these, and it'll be even more interesting to see if interest will pick up from waves of "bottom feeders" following in Buffett's footsteps. With BTC correlated so highly to the Nasdaq at the moment, that could potentially help quiet some traders' fears.
Our long-term outlook on crypto remains the same, so if you're a HODLer, keep holding on.
But if you want some more guidance to medium-term trading and what to do in this type of market, I highly suggest checking out my colleague Juan Villaverde's Crypto Profit Challenge, a three-part training series where he breaks down his strategy for understanding the best times to act … and the best times to HODL.
The first session is tomorrow, May 10 at 2 p.m. Eastern, so I suggest you save your seat now. Click here for WCP registration.
Best,
Marija Matić
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