Crypto Weekly: Neither the market nor stablecoins are stable Crypto Weekly: Neither the market nor stablecoins are stable Crypto Weekly: Neither the market nor stablecoins are stable

Crypto Weekly: Neither the market nor stablecoins are stable

Mads Eberhardt

Cryptocurrency Analyst

Summary:  The crypto market has plunged over the past week with Bitcoin and Ethereum down 12% and 14%, respectively. However, these are not the only ones not being stable, since the stableness of the largest decentralized stablecoin is questionable, potentially causing systemic risk. What is stable, though, is the International Monetary Fund’s negative view on crypto. Its view has likely prevented Argentinian banks from offering crypto services.


The crypto market sees red

The crypto market saw red last week due to fatigue in the market. Opening last week at 38,300 (BTCUSD), the largest cryptocurrency Bitcoin has since tumbled around 12% to its current price of 33,700. The second-largest cryptocurrency Ethereum followed suit by decreasing 14% in value from 2,850 (ETHUSD) to 2,450 over the past week.

The fatigue of the crypto market is highly related to the fatigue of other asset classes such as equity, particularly technology stocks. For 2022 so far, investors have been realizing risk-off by liquidating risky assets. Since the crypto market is one of the more speculative and risky assets, it has been clear that by liquidating crypto, the risk of one’s portfolio would be better balanced. Because the crypto market has been correlated to the equity market a whole lot this year, crypto has neither acted as a hedge, fundamentally weakening the store-of-value narrative of Bitcoin.

On-chain analysis from Glassnode suggests that the sell-off of crypto might continue, given that the inflow of Bitcoins to exchanges has drastically picked up in volume. When holders send Bitcoin or for that matter, other cryptocurrencies to exchanges, it is often a sign of weaker hands, as by having the funds directly on an exchange, the holder can quickly liquidate the funds. Similar to other assets, the current state of the crypto market is framed in fear upon countless uncertainties, including the invasion of Ukraine by Russia, decade-high inflation, increasing interest rates, and commodity shortage. Even without countless uncertainties, the fatigue in 2018 following the 2017 bull market was worse in terms of price declines than what the market has experienced this time around, so if it is comparable, this plunge might yet get worse. On the other hand, one swallow doesn’t make a summer, in that the crypto market is now more mature than in 2018.

For a moment, the largest decentralized stablecoin was not that stable

To protect users and investors from the volatile nature of cryptocurrencies, cryptocurrencies pegged 1-to-1 to mostly USD known as stablecoins were launched. The largest stablecoins are pegged to the dollar by the issuer having an equal amount of reserve in USD in bank accounts or other dollar equivalent assets. However, since the decentralization of these is questionable, multiple projects have launched somewhat fully decentralized stablecoins, including Terra and MakerDao.

The largest of those two Terra and its stablecoin TerraUSD worth $18.6bn has long been the subject of criticism. Many believe that Terra’s algorithm to keep it stable might not be sustainable long-term, particularly under harsh market conditions, as some of the collateral of the stablecoin is among other things based on the foundation’s Bitcoin holding. This means that TerraUSD and therefore, the whole crypto market is subject to systemic risk potentially caused by the Bitcoin price. It seems some traders wanted to exploit Terra as a house of cards this weekend by selling TerraUSD worth almost $300mn in a matter of hours. At one point, TerraUSD traded as low as $0.98 but recovered partially over the next 24 hours. TerraUSD currently trades at $0.995. Even though TerraUSD did not significantly de-peg from USD for a long time, the present algorithm of TerraUSD is not genuinely encouraging.

With the power of IMF, Argentina says no to crypto

The International Monetary Fund (IMF) has once again clashed with crypto. When the IMF approved a $44bn extended debt plan for Argentina in March this year, IMF stipulated that Argentina had to discourage the use of cryptocurrencies. It seems that Argentina’s Central Bank is meeting this stipulation because it prohibited banks from offering crypto services last week. The prohibition comes only days after two large Argentinian banks started offering crypto trading, an offering they will ultimately have to roll back now.

Bitcoin/USD - Source: Saxo Group
Ethereum/USD - Source: Saxo Group
UST / USD. Source: TradingView, Coinbase

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.