- Crypto markets are a tad weaker on Wednesday but within recent ranges, as markets digest Fed Chair Powell’s hawkish commentary.
- The Fed won’t hesitate to take rates above neutral, said Powell, deterring crypto bulls from chasing prices higher.
- Total crypto market cap was last around $1.27 trillion with bitcoin last trading just under $30,000.
State Of The Market
While constructive updates out of China regarding a potential easing of Shanghai lockdowns and of the ongoing big tech crackdown got a rally in US and global equities started on Tuesday, the gains accelerated in US trade following robust US Retail Sales and Industrial Production data. In the end, the S&P 500 and Nasdaq 100 indices ended the day higher by 2.0% and 2.6% respectively, with traders shrugging off the hawkish tone to US Federal Reserve Chair Jerome Powell’s remarks towards the end of the day.
This unsurprisingly helped give risk-sensitive cryptocurrency markets a boost at the time, with the total crypto market capitalization rising to close Tuesday trade higher by about 2.5% and back above the $1.3 trillion mark.
However, as US equity index futures hand back some gains in pre-market trade, crypto markets have also come under some modest pressure. Total market cap has now more or less already given up all of Tuesday’s gains and is back to trading just above $1.27 trillion.
The more time markets have had to digest Powell’s remarks, the more the crypto bulls seem deterred from chasing prices higher. To recap, the main message from the Fed Chair was that the central bank remains hyper-focused on tackling sky-high inflation and will not hesitate to move rates above so-called neutral (i.e. the 2.5% area) if required.
For now, markets do not seem to be betting on interest rates moving well beyond neutral, which has facilitated stabilization in equities and crypto, and explains why bonds are consolidating below recent highs (10-year yields are still below 3.0%). Hence, the total crypto market cap continues to trade within the $1.25-35 trillion range established over the past four sessions.
But should the inflation figures fail to moderate as much as hoped for in the next few months, recent trends (weaker equities and crypto plus higher yields) could return as markets up their Fed tightening bets. In this bearish scenario, a break lower to annual sub-$1.1 trillion lows and perhaps below $1.0 trillion would very likely be on the table.
Looking ahead, it should be a quiet day on the economic calendar with no notable US data aside from some US housing data, which shouldn’t impact crypto. Any further Fed speak would be notable, as ever.
In fitting with the broader stabilization of crypto markets, bitcoin continues to pivot on either side of the $30,000 per token mark, with its market cap near $570 billion, giving it a market dominance of still close to 44.5%. BTC/USD was last down about 1.5% on Wednesday.
Ethereum, meanwhile, continues to consolidate just above the $2,000 per token mark, giving it a market cap of around $250 billion and a dominance of around 19.2%. ETH/USD was last down about 2.6% on Wednesday.
In terms of some of the other major altcoins, Ripple’s XRP was last down around 2.0% but remained within recent ranges in the low-$0.40s per token. Likewise, Binance’s BNB was down about 1.4% but stable within recent intra-day ranges in the $300 per token area.
Solana’s SOL was last down closer to 5.0% on the day, but also within recent ranges around the mid-$50s per token, while Cardano’s ADA was last down about 2.5% in the mid-$0.50s, also within recent ranges.
DeFi, NFT Update
The chilling impact of the collapse of Terra’s ecosystem remains apparent across the Decentralised Finance (DeFi) space. Trade value locked (TVL) across all major chains was around $170 billion at the start of the month, but is now at around $100 billion, where it has remained for the last few days.
Prior to that, attractive yields on many assets including stablecoins across the DeFi space had supported TVL despite a broader downturn in cryptocurrency prices since the start of the year. But UST’s woes have hit confidence badly. A sustained upturn in crypto prices is likely going to be required for TVL to recover back to $200 billion once again, a prospect that doesn’t seem likely any time soon.
In tandem with the recent stabilization of the TVL across DeFi, the market cap of major DeFi governance and stablecoin tokens has remained stable in the mid-$50 billions area on Wednesday, according to CoinGecko data.
In terms of DeFi news, the Terra community has rejected a proposal from founder Do Kwon to revive the ecosystem with a blockchain fork. The community instead seems to favor an aggressive burn mechanism to address the flood of LUNA supply. As of Wednesday, LUNA’s market cap was just above $1.1 billion, making it the 12th largest of the major DeFi tokens.
Meanwhile, the UST token was last trading just under 10 cents on the dollar and had a market cap of around $1.4 billion.
Turning to the non-fungible token (NFT) market, in fitting with the broader crypto theme this week, the price floor of major NFT collections have been stabilizing. The price floor to bag one of Yuga Labs’ Bored Ape Yacht Club NFTs, having reached above $400,000 in late April, has stabilized around the $200,000 mark in recent days.
Meanwhile, after trading around $200,000 for most of 2022 but then falling towards $100,000 in early May, the price floor to own a Crypto Punk NFT has stabilized near the $110,000 mark in recent days.
In terms of NFT news, Spotify is reportedly testing the addition of NFT galleries on artist profiles, as the company explores ways to “improve artist and fan experiences”. Meanwhile, Robinhood is reportedly on the cusp of launching a new self-custody crypto wallet that will support NFTs, a move hailed as a significant stride in the right direction by Web3 advocates.
Glassnode data showed that, as of Wednesday morning, there had been modest outflows of $38.7 million worth of bitcoin and $64.5 million worth of ethereum from exchange wallets to private wallets over the last 24 hours, in fitting with the broader theme of continued stabilization.
According to blockchain transaction tracker Whale Alerts, a massive 2,447 bitcoins worth over $70 million at the time were transferred into a private wallet from a Coinbase wallet on Wednesday, indicative of Whale dip-buying.
Data from Glassnode on Wednesday also highlighted a shift in flows in the stablecoin market, with money leaving USDT (USDT tokens being redeemed for their cash equivalent) and going into the likes of USDC and BUSD. Since the collapse of algorithmic stablecoin TerraUST, around $7.5 billion in USDT tokens have been redeemed, taking the coin’s market capitalization to around $74 billion.
Meanwhile, close to $4.0 billion in USDC has been issued, taking the second largest stablecoin to a market cap of around $52 billion, making it the fourth-largest cryptocurrency by market cap. Similarly, BUSD’s market cap has risen from under $17 billion to around $18.2 billion over the same time period.
“What we are potentially watching is a changing preference for which stablecoins the market prefers,” said James Check, an analyst at Glassnode. Check speculated that a large trader or group of traders attempted to utilize heightened concerns after UST’s collapse to exert pressure on the USDT and perhaps trigger a similar de-pegging event last week.
Traders will recall that USDT did briefly come under pressure, though has maintained its peg well. Nonetheless, amid the heightened focus on USDT losing its peg, investors have been redeeming their USDT tokens and allocating towards other potentially “safer” stablecoins.
South Korea has reportedly launched an emergency investigation into the collapse of the Terra ecosystem and the downfall of its native governance token LUNA and algorithmic stablecoin UST. The country is reportedly considering implementing a licensing system for coin issuers and crypto exchanges, which it thinks might be able to mitigate investor losses from bad actors.
Meanwhile, the South Korean government reportedly wants to summon Terra founder Do Kwon to a hearing before parliament over Terra’s recent crash. Yoon Chang-Hyeon, a representative of the ruling People Power Party, said that “we should bring related exchange officials, including CEO Do Kwon of Terra, which has become a recent problem, to the national assembly to hold a hearing on the cause of the situation and measures to protect investors”.
Ahead of the meeting of G7 finance ministers later this week, Bank of France head and European Central Bank governing council member Francois Villeroy de Galhau has issued fresh calls for more crypto regulation. “What happened in the recent past is a wake-up call for the urgent need for global regulation… Europe paved the way with MICA (regulatory framework for crypto-assets), we will probably… discuss these issues among many others at the G7 meeting in Germany this week”, he said on Tuesday.
Meanwhile, over in the US, the Congressional Research Service, a legislative research agency that supports Congress, described the recent downfall of UST and the broader LUNA ecosystem as like a bank run.