Stablecoin Woes, Unfavorable Macro Flows Weigh on Crypto

Altcoins

Turning to etheruem (ETH), ETH/USD was last trading lower by close to 5.5% in the mid-$1,900s. The cryptocurrency has recovered from an earlier crash as low as the $1,700s for the first time since June 2021, where it tested a triple bottom in the $1,750 area from the middle quarters of 2021.

At current levels just under $2,000, the market cap of the world’s second-largest cryptocurrency stands at just above $230 billion and, like bitcoin, is around 60% down versus its record highs from last November.

Other notable layer-1 blockchain tokens in the top ten cryptocurrencies by market cap took a beating on Thursday.

• Binance’s BNB is down around 10.4% in the last 24 hours, according to CoinMarketCap, at the time of writing.
• Ripple’s XRP last down about 24% in the last 24 hours.
• Cardano’s ADA is around 25% lower in the last 24 hours, whilst Solana’s SOL has shed about 28% of its value over the same time period.
• Popular meme tokens Dogecoin (DOGE) and Shiba Inu (SHIB) were both down in the region of 30% over the last 24 hours. DOGE’s market cap fell under $10 billion for the first time since April 2021.
• LUNA, the native token on the Terra blockchain, was last changing hands on exchanges for under 5 cents, meaning it has lost about 99.9% of its value from its record highs printed at the beginning of April near $120 per token since the de-pegging of Terra’s flagship stablecoin UST.

Stablecoins

Stablecoin trouble that originated over the weekend just gone with the de-pegging and subsequent collapse of Terra’s algorithmic stablecoin UST (which has resulted in the collapse of the Terra blockchain’s native LUNA token) has spread to Tether’s stablecoin USDT.

USDT/USD went as low as $0.94 on Thursday, according to Coinbase data cited on TradingView. It now trades closer to $0.99 again.

USDT is allegedly backed 1:1 with actual US dollars of liquid equivalents (short-term US debt instruments), according to Tether. But Tether has come under scrutiny and criticism in the past amid claims that USDT isn’t actually backed 1:1.

UST, meanwhile, continues to trade like an illiquid altcoin and continues to swing all over the place. It was last trading around $0.50, despite Terraform Labs announcing further measures to save the peg on Twitter.

Citadel Securities, BlackRock, and Gemini have all criticized social media-based conspiracy theories alleging that they played some part in the UST collapse.

For now, USD Coin (USDC), Binance USD (BUSD,) and Dai (DAI), the next major USD stablecoins, all continue to trade comfortably in line with their 1:1 pegs to the US dollar.

Flows, deals, and transactions

According to Glassnode, $3.3 billion in bitcoin was sent to exchange wallets on Wednesday versus $3.2 billion out, amounting to a net inflow of around $49.9 million.

That coincided with the 7-day moving average of Exchange Inflow Volume reaching an 11-month high of 3,372.517 bitcoins (per day) and bitcoin Balance on Exchanges reaching a 1-month high of 2,542,255.466 bitcoins on Thursday, according to Glassnode.

Traders moving bitcoin to exchanges in a higher number is usually a sign of an elevated intent to sell in the market.

Meanwhile, crypto investors reportedly moved $1.6 billion into exchanges on Wednesday versus $1.6 billion out, resulting in a net inflow to exchanges of just over $30 million.

DeFi tokens

According to CoinGecko, the market cap of DeFi tokens fell to $48.6 billion on Thursday. That marks a more than 57.5% collapse in just seven days and is mostly due to the demise of LUNA, the former largest of the DeFi tokens.

The total value locked (TVL) on all DeFi platforms continued its recent collapse and was last at just over $100 billion, down over 25% in the last 24 hours alone, data on DeFi Llama showed. Much of the recent collapse has been driven by the downfall of the Terra ecosystem, which now has a TVL of only about $2.0 billion versus close to $22.0 billion just one week ago.

• Of the largest ten DeFi tokens, Lido Staked ether’s STETH (around -20% in the last 24 hours)
• Chainlink’s LINK (around -25%)
• Uniswap’s UNI (around -23%)
• PankcakeSwap’s CAKE (around -27%)
• Maker’s MKR (around -30%)

They are all performing poorly in tandem with the broader crypto market drop, at the time of writing.

DeFi stablecoins including Dai’s DAI, Frax’s FRAX, and Magic Internet Money’s MIM are all remaining broadly stable close to $1.0, as is their intended purpose.

Crypto regulation landscape

Australia’s first ever bitcoin and ethereum Exchange Traded Funds (ETF) went live on Thursday, launched by ETF Securities and Cosmos Asset Management. Trading surpassed A$ 1 million in the first two hours, which market commentators said marked a strong start given broader market turmoil.

“ETF Securities and Cosmos Asset Management’s cryptocurrency launch may go down in history books and put Australia’s ETF market in the running,” analysts at Bloomberg Intelligence wrote. Australia’s crypto market could hit $1 billion by the end of the year, with the country potentially acting as the Asia-Pacific’s gateway to crypto ETFs, they noted.

With Australia joining ranks with Canada as one of the few major developed economies where cryptocurrency ETFs have received approval, pressure on the US Securities & Exchange Commission to allow a US-based crypto ETF builds further.

Reports were doing the rounds on Thursday that Grayscale has met with the US SEC privately as it pushes for regulator approval of its plan to convert its Bitcoin Trust into an ETF.

Speaking of the SEC, two former SEC lawyers told The Block on Wednesday that the US regulator is likely already investigating what happened to UST over the weekend.

The SEC had already taken an interest in the Terra ecosystem, one of the lawyers said, noting the Mirror protocol that enabled crypto investors to buy digital assets whose value remains closely linked to traditional financial assets, though remains outside the regulatory purview.

Elsewhere, the High People’s Court in Shanghai declared bitcoin to be a legal form of virtual property that will be protected under Chinese law. This is despite the fact that cryptocurrency trading is banned in China.