09 May 2022

Macro uncertainty and stablecoin implosion – the perfect storm

A combination of macro uncertainty and the implosion of the algorithmic stablecoin UST has pushed the crypto markets deep down into red territory over the past seven days.
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The bitcoin price fell 17% over the past seven days, seeing its sixth straight red week. ETH and BNB remain highly correlated with BTC and are both down 16% over the past seven days.Last Wednesday’s FOMC meeting met expectations, announcing a 50bps rate hike and balance sheet normalization starting June. During the presentation, Jerome Powell announced that the FED is not actively considering a 75bps rate hike, leading equities and bitcoin to soar in the following hours. The tide quickly turned on Thursday, with both equities and crypto experiencing a further downfall.
Source: Tradingview (Coinbase, Binance US)
The current risk-off mode in the markets has led bitcoin’s correlation with US equities to grow further, shown by its 90-day correlation with the S&P 500 sitting at 0.633.Over the past week, crypto market participants have been paying close attention to Terra and its algorithmic stablecoin, UST. The stablecoin lost its peg, and Terra plummeted 62%. Bitcoin suffered collateral damage in the UST turmoil, putting further pressure on the market.
Stablecoins absorbing a growing share of the crypto market
Stablecoin dominance continues to grow in the crypto market.All indexes continue to move in tandem with bitcoin as correlations remain elevated in the crypto market.
Source: Bletchley Indexes
Bitcoin (-17%) and Mid Caps (-16%) have outperformed Small Caps (-25%) and Large Caps (-22%) during the poor start to the month.The underperformance of Large Caps relative to bitcoin is caused by the chaos related to Luna’s massive crash lately.
Source: CoinMarketCap
BUSD has entered the top 10 coins by market cap. Now, stablecoins represent four out of the ten largest cryptocurrencies measured by market cap, illustrating the state of the market, with crypto owners actively seeking refuge in stablecoins.However, one of the four stablecoins is less stable than the rest. After seeing its peg break over the weekend, Terra UST’s market cap has fallen from $18 billion to $16 billion, leading to contagion in the market.
Highest daily bitcoin spot volume since December 4th
On Monday we saw $13 billion worth of bitcoin changing hands in the spot market. This is the highest daily spot volume observed since December 4th, 2021. The volume surge is especially interesting considering the dwindling spot volumes we have seen during the latest month, as April saw the lowest bitcoin spot volumes since last summer. The recent uptick in volatility seems to have woken up traders. It will be interesting to see if the volumes will continue increasing or if Monday’s surge was simply an anomaly caused by the de-pegging of UST.
Source: Skew, Tradingview (Binance, Binance US, Bitfinex)
Sharp uptick in bitcoin’s volatility
Volatility has returned to the market after months of tight consolidation in bitcoin. Yesterday saw the largest daily percentage loss in bitcoin since May 19th, 2021, of 11.6%. Bitcoin has since recovered 5% from yesterday's close. This price action has caused both the 7-day and 30-day volatility to surge after a monotonous month in April.
Source: Tradingview (Coinbase)
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