First Mover Asia: Crypto Market Decline Underlines Its Unpredictability; Bitcoin Holds at $31K

Technician's take: BTC's volume uptick is an initial sign of capitulation, but upside remains limited.

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The native token of the Terra ecosystem was recently down over 53% over the past 24 hours after the organization's UST stablecoin continued to fall well short of its dollar peg, and amid a report that the Luna Foundation Guard (LFG), the non-profit established to support the Terra network, was aiming to raise $1 billion to restore this parity. 

The decline followed a 30% drop on Monday. UST was recently in the red over 6%.

Meanwhile, bitcoin's roughly 1.4% upturn represented an improvement over the previous day when the largest crptocurrency by market capitalization dove below $30,000 in early Tuesday trading – the first time since July 20 it had fallen below this threshold. Bitcoin was recently trading just above $31,000.

Ether, the second-largest crypto by market cap, outperformed over the same period, rising approximately 3.5%, and was changing hands at about $2,350. 

Other cryptos were mixed for much of the day with AXS recently off over 6%, but CRO and meme coin SHIB in the green more than 8% and 10%, respectively.

The crypto industry continued to feel the shockwaves of wider geopolitical and economic turmoil. Crypto exchange giant Coinbase missed its first quarter revenue estimates amid a 44% decline in trading revenues from the fourth quarter. Miner Riot also missed analysts predictions as well for its first three months of 2022.

Cryptos' less tumultuous Tuesday tracked equity indices, which were mixed with the tech-heavy Nasdaq rising about a percentage point and the Dow Jones Industrial Average falling slightly. 

Investors will be eyeing the April consumer price index report, which is widely expected to show that inflation slowed but prices remained high.

In emailed comments, Jaime Baeza, CEO of Miami-based crypto hedge fund ANB Investments noted the pressure of macroeconomic events, including inflation and a tightening of central bank monetary policy on stocks and digital assets but attributed the most recent drop-off in bitcoin "to the de-peg of the UST." 

Baeza wrote that LFG's decision to defend the peg by selling bitcoin reserves "accelerated the selloff of the broader crypto market as panic spread, and a more black swan systemic-risk event loomed closer."

In an interview on CoinDesk TV's First Mover program, Joseph Kelly, CEO of bitcoin financial services firm Unchained Capital, called the de-peg "a scary headline thing."

But he added optimistically: "It's one of those things that you get to hold in contrast to bitcoin as a more sound, more explainable asset that isn't overpromising and trying to do things like maintain a dollar peg. It's one way that Bitcoin continues to shine in the long run."

The last week in crypto has shown an immense volatility, that few if any assets can match. 

Markets have lost more than $1 billion as Terra’s UST stablecoin was thrown off its 1:1 dollar peg and the crypto majors collapsed, bringing with it plenty of liquidations.

There’s a lot to unpack about the collapse of Terra’s UST. Probably the least understood part of it was the Luna Foundation Guard’s decision to lend out almost the entirety of their reserves to market makers to support the $1 UST peg by specifically making trades marked to $1. 

Somewhere there’s theoretical merit to this, but the market saw LFG’s reserves at critically low levels and pushed to liquidate as much as it could.

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