The overall cryptocurrency market cap broke down below $1.5 trillion for the first time since July 2021 after peaking just below the $3 trillion level just this past November.
Last week’s selloff appeared to likely be fueled by the LUNA / UST debacle, which should come as no surprise as this was the first time in history that a top-10 cryptocurrency became virtually worthless overnight.
The bank run on UST was a wild roller coaster ride for the past week, but finally appears to be dead and done with.
Currently, UST is trading just above $0.10 which is significantly higher than LUNA at $0.0002. Remember, LUNA had just hit an all-time high around $119 at the beginning of April.
If you aren’t ready to accept that UST / LUNA are dead, then you might buy some UST for pennies on the dollar in the hopes that one day the stablecoin will be restored to its $1 price. If you choose to take this bet then you should know it is just that… a bet!
This entire situation has shaken the global crypto community to its core, and the amount of utter distrust towards UST is likely to prevent the project from ever being revived. Billions of dollars have been wiped off the board with retail traders and investors surely being hit the hardest, while market makers and institutional interests likely going relatively unscathed if not having even made a profit by betting against UST.
Another consequence of the UST / LUNA crash is the market’s sentiment towards altcoins.
At their absolute lows on May 12th, several of the largest altcoins by market cap including Solana (SOL), Cardano (ADA), Avalanche (AVAX), and Polkadot (DOT) were down about 84-88% from their respective all-time highs.
Comparatively, Bitcoin (BTC) and Ethereum (ETH) were each down only 63-65% from their own all-time highs.
This may be an indication for any passive crypto investors out there that it is safest to invest in the biggest and most established projects if you’re going to just buy-and-hold.
Unfortunately it doesn’t seem like a definitive bottom is in for cryptocurrencies, especially with continued uncertainty in regards to traditional equity markets.
We will continue to sit on our hands in regards to trading most altcoins and remain focused on BTC and ETH as our most reliable symbols for diagnosing the remainder of the crypto market.
What’s Keeping Bitcoin above $29,000?
Despite the litany of pressures that are impacting equities and especially cryptocurrencies, Bitcoin has managed to actually hold up surprisingly well so far and has yet to close below the $28,800 2021 low.
You don’t need to be a conspiracy theorist to see that cryptocurrency markets are manipulated by institutional interests or whales. Luna showed us just how quickly the whales can spook the market.
Bitfinex is often referred to as the whale exchange as it is popularly used for outsized orders that have historically moved the markets in volatile swings. Bitfinex also offers perpetual futures contracts, however, the exchange is not available to traders in the US.
One thing that has kept the underlying sentiment propped up throughout the past several months of selling is the continuously increasing longs through Bitfinex.
The most popular interpretation of this chart is that Bitfinex longs for BTC will spike as an indication of a bottom being established on price. This interpretation is predicated on the assumption that big money knows something that retail doesn't, which is almost certainly true in the crypto market.
This spike in long interest doesn’t seem to want to end, but has the bottom been reached in Bitcoin? Unlikely.
Value vs. Growth Cryptos
Growth stocks are typically those that you would buy in anticipation of strong earnings growth that will outperform the market, while value stocks would be those that you consider to be relatively undervalued and should be recognized by the broader market in due time.
Most people would likely recognize the entire universe of cryptocurrencies as a growth sector of the broader global equities market, but within that subcategory exists established value.
Bitcoin is the first and most established cryptocurrency in existence, even without a company or founder leading the project into the future. BTC is used as a store of value, a currency, and a tradable asset. Bitcoin’s blockchain has set an example for an entire industry of other creators, all of whom make sure to incorporate BTC in their business activities and investments in some way shape or form. A global network of miners comprise both a physical and digital infrastructure for Bitcoin to exist and be transacted on.
Simply put, Bitcoin is leaps and bounds beyond the rest of the cryptocurrency space and that isn’t going to change anytime soon. For that reason, when price action gets unsettling crypto traders are likely to exit their altcoins and fall back into Bitcoin as a safety play (that is if they don’t go to cash or gold).
This is exemplified at the top of this report where we demonstrated that maximum drawdown from all-time highs for several of the largest cryptocurrencies by market cap. While Bitcoin wasn’t spared, it didn’t selloff as much as nearly every other major cryptocurrency over the past 6-months.
Aside from Bitcoin, Ethereum is the most likely cryptocurrency to be credited with the title of established ‘value’.
Ethereum is the blockchain for builders, backed up by the Electric Capitol Developer Report from this January:
“4,000+ monthly active open-source developers work on Ethereum, 680+ open-source developers work on Bitcoin”
Bitcoin has a 44.4% dominance of the total crypto market cap, followed by 19.2% from Ethereum. Many believe that with network and fee structure optimizations that are promised to come with the ETH 2.0 update, Ethereum could eventually give Bitcoin a run for the spot as the largest cryptocurrency.
No matter what you think between BTC and ETH, one thing is for sure… it isn’t a great time to be an altcoin!
There are nearly 20,000 different cryptocurrencies listed on coinmarketcap.com and picking the right altcoin can be almost impossible.
For the sake of comparison, there have been 3,000 different automobile manufacturers in the history of the United States, and only 3 have stood the test of time.
Check out our new CryptoPulse Twitter account @MGCryptoPulse for daily tweets and updates about the crypto space!