Crypto Update - June 6, 2022 (Patreon)

Price Action/Macro

Overall crypto market cap continued to drop over the past two weeks. However, the major difference was the decoupling from overall equity markets. Over the past two weeks, ETH dropped over 10% while both the Nasdaq and S&P have risen around 5%, which is a major breakdown in recent highly correlated moves. 

- BTC dropped less than 1% over the past two weeks and is still trading around 30k

- ETH dropped around 10% over the past two weeks is now trading around 1.8k

- Total Crypto market cap is down 5% with total market cap at around only $1.29 trillion

The idiosyncratic drop in crypto assets is still caused by the aftershocks of the Terra and UST. As mentioned previously, the collapse of Terra and UST have potentially caused irreversible damage to DeFi on blockchains. Indeed, most price action of L1s are still feeling the pain such as Solana and Avalanche which are both down over 20% over the past two weeks.

The attempted restart of Luna 2.0 also did not help with sentiment. The 2.0 plan created new Luna tokens which were airdropped to the holders of the original Luna and UST as an attempt to keep the community alive. Some hoped that this would compensate the massive losses sustained by the original holders, however this hope was quickly dashed as the new Luna is now trading at 70% below the high point on the first day of listing.

The Worst Is Over?

No one can predict the future, but we can perhaps say that the worst is behind us with the Terra fiasco. In fact, the biggest risk on my radar was the continued redemption of the largest stablecoin USDT, leading to a run and the collapse of prices. However, it appears that USDT redemptions have stopped and is now stable, despite the continued drop in crypto prices. This is actually bullish because it means there is no more panicked redemptions despite market continues to be weak.

On chain data looks much better now too with curve 3pool showing a gradual rebalancing as USDT proportion reduced from 70% to 61%, which means that people are withdrawing (buying) USDT from the pool by depositing USDC or DAI.

ETH 2.0?

However, there could potentially be a catalyst on the horizon as we are starting to hear more chatter about the ETH merger happening in August. Eth core dev Preston Van Loon and Eth Foundation member Justin Drake both confirmed the strong desire to launch the merger before the “difficulty bomb”, which will start degrading the network and making it slower starting in Aug.

Indeed, market participants are staking ETH onto the beacon chain at unprecedented amounts in anticipation of the merge and the increase in yield of ETH. Right now the prediction for ETH yield is anywhere from 7% to 15%, depending on the level of activity and the amount staked.

NFT Insider Trading?

A big news over the past week is that the DOJ is charging a former OpenSea executive for insider trading, with the max sentencing of 20 years. How much money did the guy make? 19ETH which is less than 40k USD… If he receives the max sentence, that is basically 1 year of jail time for 2k USD. It’s clear that the US justice department is trying to make an example but the punishment may be a bit overbearing.

article here 

Looking Forward

• ETH Merger - Crypto market lacks catalysts for the time being. The nearest potential catalyst is the ETH merger; however due to the technical difficulties, it could also be seen as potential execution risk. I know some players who wants to sit out of the market until the merger is completed successfully.
• Quantitative Tightening – US 10 year have fallen below 3% again which is giving stocks a bit of breather. There are calls for tightening to slow, which will be positive for crypto. We will need to track FOMC actions, but any implications will be priced into 10 year yields immediately.
• Senator Cynthia Lummis from Wyoming is also introducing a piece of crypto legislation next week. But it will most likely won’t make much waves as there is a long path between proposal and law. She is known to be pro-crypto and it’ll be interesting to see how this will be received by the US government