In this Week's Market Update
Crypto markets have experienced a sharp sell-off this week following unfavourable CPI news over the last seven days and growing uncertainty over crypto lending bank Celsius's potential risk of insolvency. With the Terra fiasco still fresh in the mind of investors, many have de-risked their portfolios accordingly. Major assets like BTC & ETH have re-tested prices not seen in almost 18 months. While most altcoins have seen significant drawdowns as bearish sentiment continues.
- The European Central Bank has signalled that it will stop its quantitative easing programme and that it will raise interest rates by 0.25% from July.
- Analysts are anticipating a U.S. cash rate increase of 0.75% on Wednesday by the Federal Reserve, the biggest hike in almost 30 years.
- The price of oil has continued to rise, reaching approximately USD$122. This is the highest price the commodity has traded at in the last ten years.
- The US 10-year Treasury note has again breached the 3% yield level, currently trading at 3.375 (the highest the yield has been for more than three years). This is significant for investors and borrowers who now face higher rates on debt and the movement of funds from high-risk stocks to low-risk bonds, generally leading to more sell pressure in equities.
Crypto Market Updates
- Crypto lending platform Celsius, citing the need to “stabilise liquidity”, said it was freezing all withdrawals and transfers between accounts. Rival Nexo responded by tabling a proposal for a buyout of Celsius’s liquid assets.
- The SEC has signalled its intent to investigate the UST collapse and Terraform Labs following the USD$60b collapse. This follows similar statements made by South Korean regulators who are investigating Do Kwon individually and Terra’s supportive organisation.
- Jay-Z and Jack Dorsey launch a joint initiative known as the ‘Bitcoin Academy’, a programme aimed at increasing financial literacy within the teen population in Brooklyn.
The total crypto market cap has fell over 13% in the past 24 hours, taking the value of all assets to levels not seen since February 2021. For context, that’s a drop of approximately 70% from its all-time high of approximately USD$3 trillion last November, when Bitcoin (BTC) peaked at USD$69,000.
Today, BTC dropped below USD$22,000 and is currently trading at USD$22,736, a drop of over 17% on the daily and over 30% in the past seven days. This downtrend is not in isolation, as the cryptocurrency market has entered a new market trough. CPI news last week as well as increasingly high inflation are continuing to signal bearish market sentiment in traditional financial markets and alternative asset classes alike.
In terms of network dynamics, the Lightning Network hit 4,000 Bitcoin in public capacity/total value locked (TVL), a new all time high. This increase in capacity of the layer-2 scaling solution enables more users to transact higher volumes of BTC through the networks channels.
Lightning network capacity since the start of 2022
The ETH merge from Proof of Work (PoW) to Proof of stake (PoS) is proceeding as planned despite bearish market conditions. This protocol upgrade will significantly reduce the environmental impact of the Ethereum network whilst reducing the net issuance of Ether. The merge upgrade on the Ropstein testnet was successfully conducted on June 9. This test was a practice run for the merge, where all the data on the current proof of work (POW) Ethereum blockchain will transferred onto the proof of stake (POS) beacon chain. Unfortunately, this solid progress has not been reflected in Ethereum’s current price due to the depeg of stETH and ETH which you can learn more about here.
Ethereum is currently trading at approximately USD$1,100, down 40% over the last week. Interestingly, ETH has continued its recent trend of underperforming BTC during large sell offs, with the ETH/BTC pair trading 13% lower. Growing bearish market sentiment surrounding the Merge coupled with worsening macroeconomic landscape has resulted in price performance similar to that of altcoins.
In the past seven days, DeFi is down 30%, Smart Contract Platforms are faring worse falling 35.8%, Currencies, Web3 and Gaming have all slipped roughly 32.5%.
This downward trend is not surprising in a rising interest rate environment as investors seek to de-risk their portfolios. Pressing news of liquidity issues coming from Celsius have further added fuel to the fire. Celsius (CEL) is down 63% in the last seven days and saw a large sell-off (down 70%) in the hours after announcing to the market that withdrawals would be halted due to volatility. Some market commentators have speculated that Celsius did not have sufficient liquidity to settle withdrawals on a significant scale. However, unlike Terra it appears that Celsius have exercised better restraint with regard to prudential capital management at these early stages.
Similar to the cryptocurrency market, NFT markets have also compressed following the market capitulation, largely in part to the steep fall in ETH price. However, NFT trade volume has increased substantially in the last 24 hours, increasing 60%, implying that collectors are taking advantage of decreased prices. In the last 24 hours, the BAYC floor dropped by 16% whereas MAYC is down 22%.
Extending to a larger timeframe, the previous month was devastating for NFT sales volume and the price of all the major collections. NFT sales volume has dropped by 75.22% in the last 30 days and a Bored Ape went from 152 ETH to 82 ETH. At ETH prices today, this represents a drop in price from USD$180,000 to USD$92,000.
The company behind the Terra ecosystem, Terraform Labs, is currently battling legal issues in both South Korea and the United States. In South Korea, Terraform Labs is being investigated for embezzlement of BTC by an employee. Meanwhile, in the United States, the Second Circuit Court of Appeals has rejected co-founder Do Kwon’s motion challenging a subpoena served on him in September 2021. The subpoena, served on Kwon by the SEC, was held to be effectively served and remains valid. It is expected that the SEC will also consider investigating whether Kwon and Terraform Labs violated securities laws over which the SEC has jurisdiction as Terraform Labs’ legal issues continue to grow.
Following crashes in both LUNA and UST, investors suffering from losses relating to these cryptocurrencies have filed a class-action in the Northern District of California. The class action is alleging that the assets in question are securities that have not been registered and that Binance failed to be registered as a broker-dealer in the United States. As a result, the allegations argue that Binance repeatedly violated U.S. securities laws by offering the allegedly unregistered securities without proper licensure from the SEC. Additionally, the class action has alleged that Binance made false advertisements, essentially misleading investors and users of Binance into buying LUNA and UST.
Recommended reading: Bitcoin Lightning Network Explained
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