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Market Wrap: Cryptos and Stocks Fall, Luna Foundation Guard Accumulates Bitcoin

Damanick Dantes, Angelique Chen-Coindesk
2022-05-06 03:14
Sellers returned in full force on Thursday, sending both stocks and cryptos lower. The risk-off tone among market participants has been a dominant theme this year despite short-term price swings.
Bitcoin (BTC), the world's largest crypto by market cap, dropped by as much as 10%, reversing Wednesday's rise toward $40,000. The decline Thursday was the largest price drop in two months.
Meanwhile, alternative cryptos (altcoins) such as Solana's SOL token and Avalanche's AVAX token saw similar declines of about 10% over the past 24 hours. Popular meme coins such as Dogecoin's DOGE and Shiba Inu's SHIB declined by 5% and 7%, respectively.
Bitcoin's selling volume isn't as extreme relative to previous price downturns. That suggests further downside is likely before sellers capitulate. Technical indicators point to further downside toward the $30,000-$32,000 support zone as momentum weakens.
And in the futures market, a large amount of open interest was added to the market during Wednesday's rally. During Thursday's sell-off, almost all of that open interest was closed out, according to Glassnode, a crypto data provider.

Latest prices

●Bitcoin (BTC): $36,260, −8.86%
●Ether (ETH): $2,726, −7.60%
●S&P 500 daily close: $4,148, −3.55%
●Gold: $1,880 per troy ounce, +0.69%
●Ten-year Treasury yield daily close: 3.07%
Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.
The chart below shows the spike in long BTC liquidations over the past 24 hours, which reached the highest level since April 10.
Liquidations occur when an exchange forcefully closes a trader’s leveraged position as a safety mechanism due to a partial or total loss of the trader’s initial margin. That happens primarily in futures trading, which only tracks asset prices, as opposed to spot trading, where traders own the actual assets.
Selling intensified later during the New York trading day, which pushed bitcoin below $36,000. That triggered an uptick in long liquidations. From a technical perspective, the sharp price drop rejected support at $37,500, which was the lower end of a three-month price range.
Over the past month, option traders were actively hedging against further price drops and purchasing front-month volatility contracts. That contributed to a bearish tone among market participants, which preceded the current sell-off.

Supply meets demand?

On the flip side, it appears that selling pressure was met with renewed buying interest from the Luna Foundation Guard (LFG).
On Thursday, the foundation reported that it has acquired $1.5 billion in bitcoin to bolster the reserves of its Terra (LUNA) stablecoin. The purchase was conducted using over-the-counter swaps, which included one billion TerraUSD (UST) for $1 billion worth of BTC. Afterward, the foundation purchased an additional $500 million worth of BTC.
The newly acquired BTC brings the LFG’s total holdings to about 80,394 bitcoins, worth just shy of $3 billion. LFG aims to have accumulated a total of $10 billion in stablecoin reserves before the end of the third quarter.
"From the flows side, we are also watching progress on the Mt. Gox settlement to see when bitcoin payments totaling about $7 billion-$8 billion could potentially arrive in the market, which could be as early as the second half of 2022 or delayed until 2023," David Duong, head of institutional research at Coinbase, wrote in a report earlier this week.
"This could potentially be offset by purchases of bitcoin (or other tokens) to shore up stablecoin reserves, comparable to the LFG flows we saw in March and early April," Duong wrote.
Theoretically, persistent buying from LFG and others could absorb recent selling among traders.

Altcoin roundup

  • Dogecoin, Shiba Inu underperform broader crypto market despite fundamental growth: The tokens of dogecoin and shiba inu fell by an average of 1.6% in the past 24 hours. The relative underperformance came even as both ecosystems saw fundamental growth in their underlying communities. DOGE was used to fund the purchase of a controlling stake in BIG3 league basketball team Aliens, and Shiba Inu developers started allowing community members to use SHIB for minting virtual land on Shiba Inu’s new metaverse. Read more here.
  • Valkyrie’s bitcoin futures ETF gets SEC approval, following Teucrium nod: Valkyrie's XBTO Bitcoin Futures Fund is the latest crypto exchange-traded fund to win approval from the Securities and Exchange Commission. Valkyrie filed its application using the Securities Exchange Act of 1934, filing a 19b-4 form with the SEC. Most of the previously approved bitcoin futures ETFs filed by other companies were under the Investment Company Act of 1940, which follows a slightly different regulatory pathway to approval. Read more here.
  • Solana Pay adds customized transaction requests for merchants: Solana Pay will facilitate transaction requests between merchants and users with a feature that went live on the platform this week, according to a post by Solana developers. Developers added the transaction request feature to allow merchants to provide customized transaction links to users, such as unique non-fungible tokens (NFTs) or virtual gifts. Read more here.

Relevant insight

  • Listen 🎧: The CoinDesk "Markets Daily" podcast takes a deeper dive into Wednesday’s Fed policy announcement and discusses what a bunch of apes can tell us about the NFT market.
  • Bankoff’s Crypto Wallets Nearly Empty After Virtual Debit Card Provider Folds: The Delaware-registered company said Visa and Stripe cut it off for serving too many Russians, but on-chain data has stoked users' suspicions.
  • US House Panel to Weigh FTX Proposal on Clearing Customers’ Swaps Trades: As the CFTC is still considering an application from FTX.US, lawmakers will examine the potential trend at hearing.
  • Luna Foundation Guard Acquires $1.5B in Bitcoin to Reinforce Stablecoin Reserves: The purchase brings LFG's holdings to more than 80,000 bitcoins, or nearly $3 billion.
  • Bitcoin Plunges Most in Two Months Amid Stock Market Selloff: Bitcoin dropped more than 7% on Thursday. The price drop appeared synced with a broad selloff in stocks and bonds.
  • Elizabeth Warren Echoes Labor Dept. Concerns About Fidelity’s Plan for Bitcoin in 401(k) Retirement Plans: In a joint letter with Sen. Tina Smith, Warren asked Fidelity "about the appropriateness" of its plans.

Other markets

Most digital assets in the CoinDesk 20 ended the day lower.

Biggest Gainers

There are no gainers in CoinDesk 20 today.

Biggest Losers

AssetTickerReturnsDACS Sector
AlgorandALGO−11.9%Smart Contract Platform
CosmosATOM−11.8%Smart Contract Platform
FilecoinFIL−11.5%Computing
Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.
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