Bitazza Crypto Weekly: LUNA and UST Collapse Raises Fear In the Crypto Market -

Crypto Weekly: 17 – 22 May 2022

The de-pegging of UST, Terra Chain’s native algorithmic stablecoin, has sent shockwaves around the crypto market, including plummeting LUNA prices and even going so far as to have detrimental effects on other stablecoins.

The US Federal Reserve’s biannual report has also repeated its earlier warning regarding the risk of stablecoins, highlighting the lack of transparency regarding the riskiness and liquidity of assets backing stablecoins as well as the potential risk of destabilizing runs if the value of the assets backing the stablecoin decline abruptly.

Predictably, US Secretary of the Treasury Janet Yellen has called for greater regulation of stablecoins in order to reduce the risk that Yellen believes they pose. Yellen has urged legislators across both sides of the aisle to create a more robust framework regarding stablecoins in order to ensure an adequate regulatory and statutory environment.

Crypto traders are keeping a close eye on Do Kwon’s plans to revive Terra, with Kwon proposing a forking of Terra Chain into a new chain without the UST stablecoin. Under the proposal, the old Terra blockchain will be called Terra Classic (LUNC), while the Terra Chain fork without UST will retain the Terra name. If validator nodes pass the proposal, the fork will go live on May 27, 2022. Additionally, new LUNA tokens will be airdropped to LUNC holders, UST holders, and essential developers of the Terra Classic blockchain.

Nayib Bukele continues to be bullish on Bitcoin, with the El Salvador President announcing on Twitter that he purchased Bitcoin during the dip, allegedly adding 500 BTC at an average price of $30,744 per unit to El Salvador’s holdings. Furthermore, El Salvador is hosting an international meeting with 44 other countries regarding the prospect of Bitcoin adoption.

Despite market conditions, Michael Saylor’s confidence in Bitcoin remains high, with the MicroStrategy CEO claiming that this downturn will not affect MicroStrategy’s recent $205 million BTC-backed loan, claiming that Bitcoin will have to drop to $3,562 before facing a margin call.

Coinbase shares are down by -26.4% after announcing a $430 million loss in the first quarter. Revenue numbers for Q1 2022 were around $300 million below expectations, resulting in Coinbase shares falling by more than 85% since their high in November last year.

Finally, Tron DAO, the DAO that operates the Tron Network, has purchased 600 million TRX and 500 BTC worth $45 million and $15 million, respectively, for their USDD stablecoin reserves. Also of note, Justin Son, founder of the Tron network, has publicly denied any involvement in the UST de-pegging event, claiming that he believes the situation unfolded due to market panic rather than a coordinated attack.

Weekly Technical Analysis: 17 – 22 May 2022

Bitcoin (BTC)

Bitcoin faced a heavy sell-off that forced prices to fall through the $28,000 support level to as low as $25,000. Prices have formed a rejection candlestick pattern, indicating prominent buyback pressure. There may be a short-term recovery, and traders are advised to take profit around the $33,000 resistance level as markets remain down and risk is high.

Ethereum (ETH)

ETH underwent a similar sell-off that pushed prices to a low of $1,800 while still remaining above the $1,700 support level. ETH will have to create higher highs to break through the resistance at $2,400 to and signal a short-term recovery. If the support cannot remain intact this week, traders should consider cutting their losses.

Maker DAO (MKR)

MKR is up by +37.2% over the past week, with many adopting DAI in lieu of UST following the laters collapse. However, MKR’s trend remains bearish, and prices will have the break through the 6,400 Baht resistance level to signal a true uptrend for MKR. Assuming prices don’t fall through the 4,400 baht support level, those looking to enter an MKR position should treat the support as a buying point.

Decentraland (MANA)

MANA is down by -7.5% over the past week, representing a lesser decline than the rest of the crypto market. However, the main trend remains bearish; therefore, traders are advised to focus on short-term positions at the moment. Support is set at 35 baht, and traders are advised to consider taking profit if prices approach the 55 baht resistance. If prices can break through resistance, 55 baht can be used as the next support level moving forward.

Trading and Investment Considerations For The Week

US inflation figures for April came in at 8.3%; while this figure is down from 8.5% (March), it is still higher than analysts’ expectations, which predicted an 8.1% inflation rate. This has caused the market to respond negatively, with many taking this as a sign that the FED cannot control inflation as it currently stands and will likely have to enact tighter monetary policy and raise interest rates to 0.75% accordingly.

Investors are advised to keep an eye on any news from the upcoming ‘Future of Everything Festival’ hosted by the Wall Street Journal from May 17-19. Jerome Powell, Chairman of the FED, is scheduled to speak, and his message may potentially affect the future trend of Bitcoin price.

Additionally, minutes from the FOMC’s meeting earlier this month are scheduled to be released on May 25. This should give investors and traders some insight into the FED’s current position regarding monetary policy moving forward. If the minutes reveal that the FED is set to enact harsher monetary policy, the market will likely fall even further. However, if the minutes indicate that the FED has no imminent plans to accelerate interest rate raises, the market may have a chance to recover.

Bitcoin prices have fallen all the way to the $24,000-$26,000 level, closing the gaps in the CME Futures market. One possible interpretation is that this could signal that Bitcoin’s correction may be coming to a close. This is supported by Elliot Wave theorists, that argue that Bitcoin is approaching the end of its Wave C Corrective Phase. However, if Bitcoin continues to fall, that would signal that the correction is still ongoing, and traders and investors should stop buying BTC.

Trading strategies should focus on short-term positions and securing profits when possible as the market remains volatile and unpredictable, particularly with the pending release of the FOMC meeting minutes looming overhead. Until we can ascertain whether the meeting resulted in a positive or negative outcome for the market, anticipating which direction the trend will go remains essentially impossible.

*Materials on Bitazza Weekly Newsletter are intended to be used and must be used for informational purposes only. The views, information, or opinions expressed are solely those of the individuals involved and do not necessarily represent those of Bitazza and its employees. The information contained herein is not intended to be a source of advice or financial analysis with respect to the material presented, and the information and/or documents contained in this website do not constitute investment advice.

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