As macro markets feel the stress over the uncertainty of global fiscal policy as well as the new ravages of Omicron variant of Covid-19, this has spilled into the cryptocurrency market as the downward price spiral continues. All major cryptocurrencies were down around 5% during Asian business hours today, with others, such as Solana, Polkadot and Terra down 8%.
Market leader Bitcoin was down as much as 6% in the past 24 hours, hitting a low of US$45,945 early this morning before stabilizing around the US$47,000 mark for the remainder of the day, according to CoinMarketCap. Ethereum, which had been trading around the US$4,000 mark since late last week, similarly dropped as much as 8.5% early this morning before stabilizing, and ETH was trading at US$3,714 at press time, according to CoinMarketCap.
“It’s related to macro markets,” Justin d’Anethan, head of exchange sales at Eqonex, told Forkast.News. “So, if you feel anxiety within traditional markets, you can see that enhanced or increased within the crypto market, so people turn risk off. And right now, that’s maybe the thing leading sentiment.”
D’Anethan said this correlation is even overriding bullish indicators within the industry at the moment. Former Twitter CEO Jack Dorsey stepped down to focus on leading the payments giant Square — recently renamed Block — recently, with an expectation to increase integration with cryptocurrency. Block joins as well as an increasing number of crypto-related exchange-traded funds approved around the globe.
In the presence of these bullish factors, d’Anethan believes the downward trend is largely the result of short-term traders rather than long-term investors and that the market will likely stagnate for the rest of the year unless there is some force that pushes it in either direction. “Maybe the short-term investors are overreacting and the long-term investors might be enjoying that opportunity to buy Bitcoin cheaper,” he said.
Others say Bitcoin prices on exchanges may not always reflect what is happening with investors at a fundamental level.
“If you understand Bitcoin’s value proposition and how each of its features conspire to make it the ideal form of money, then of course it can be somewhat disheartening to see downward price movements,” said Ben Caselin, head of research and strategy at cryptocurrency exchange AAX, in an interview with Forkast.News. “Also, we must remember that even though Bitcoin is a powerful anti-inflationary asset, everyday new traders are coming into the market with different levels of experience and different notions of what Bitcoin can do for them — it takes time for newcomers to refine their perspectives and build the confidence it takes to hold a volatile asset for multiple years, or decades.”
However, the crypto industry has also been barraged with negative news in the past few days. Two high-profile hacks have struck exchange AscendEx, formally BitMax, and crypto gaming ecosystem Vulcan Forged, costing US$77 million and US$140 million respectively. Aside from negatively impacting sentiment, d’Anethan also said that this will have a negative impact on crypto prices as significant amounts of capital are sold off across exchanges.
As Forkast.News reported recently, Solana — now a top-five blockchain — also suffered transaction speed problems over the weekend with initial concerns that it might have been due to a distributed denial of service attack (DDoS). While the claim of a DDoS attack was disputed — some experts attributed the slowdown to bots attempting to pack transactions into blocks larger than what the network could handle — confidence in the Solana might have been shaken as the network had suffered an earlier DDoS attack that necessitated a network restart. SOL, the native token of Solana, is down 16% from its price point before the transaction slowdown was recorded and was trading at US$152 at press time according to CoinMarketCap.
Not all top-10 cryptocurrencies lost ground over the past 24 hours. The second-largest stablecoin, USDC, actually gained since yesterday, adding close to US$100 million to its market cap and overtaking one-time number three token ADA — the native token of the Cardano blockchain. Tether’s USDT, the world’s largest stablecoin, which currently sits in the number four position in the crypto top 10, did lose some market capitalization over this time, though it still fared better than most others in the list, according to CoinMarketCap.
A stablecoin is a token whose value is pegged to an underlying asset, in the case of USDT and USDC that is the U.S. dollar, as such their prices remained steady at US$1.00 each.
“That’s actually a good thing,” d’Anethan said of the market capitalization of the two leading stablecoins. “That means there’s a lot of capital of USD, of fiat, that is going into crypto markets, whether that’s USDT or USDC, maybe the two more popular ones or even other stablecoins. And to me, that says a lot of players are actually getting ready to load up on cryptocurrencies, not the stablecoin, but the Bitcoin, the Ethereum and potentially the Alts with all that capital that is fresh.”
Meanwhile, Caselin was not surprised that Tether’s USDT had overtaken Cardano ADA in market cap. “Cardano is still overvalued, so USDC taking over makes complete sense from every angle,” he said.
Another stablecoin project has also been gaining ground over the past few months. Rising over 1,200% since late July to set an all-time high of US$77.94 in early December, Terra’s LUNA coin is the native governance token of Terra’s algorithmic stablecoin project. Terra issues a stablecoin called UST that is pegged to the value of the U.S. dollar but uses LUNA to supplement the token whenever its value begins to drift from that US$1.00 valuation.
LUNA was one of the few coins to buck the trend of the near-market wide sell-off in the past few weeks as the Omicron variant sent shock waves through macro and crypto markets and actually soared its all-time high just nine days ago. LUNA’s price has fallen by nearly 40% since that time as it dances with Dogecoin to see which one stays on the crypto top 10 list. It was trading at US$56.20 at press time according to CoinMarketCap.
“LUNA is worth paying attention to,” Caselin said. “Especially as we see regulatory pressure on custodied stablecoins build-up, we could see more capital move to projects that support algorithmic stablecoins.”