Cryptic ball: bears rejoice.
As shared Friday, it didn't look like the crypto markets were forming a bottom by the end of the week. This Monday, bitcoin is finally tested $33k, having slipped below it for a bit, while alts are suffering even more. Is the end near or what?
- Cryptoassets started falling Sunday night when reports that US equities futures were trading in the red. Treasury yields are also on the rise and the US dollar hit a two-decade high as investors try to escape to safety. I believe we're seeing peak fear here, so let's understand what is driving it and what can change.
- Firstly, there's additional uncertainty tied up to the war in Ukraine as some speculate Putin "may officially declare war on Ukraine" on this public holiday in Russia, after the surrender of Nazi German forces in the East. As usual, once that threat is behind us the markets tend to relax a bit - so let's see how the possibility evolves during the day - hoping things don't get worse for Ukraine.
- Secondly, Wednesday we'll know the latest inflation data. I believe the CPI print won't be that bad, showing a peak in price increases in the past months, which should provide some relief on that front for the rest of the month. Still, wider recession fears are here and won't be shrugged off so easily.
- Lastly, I've been writing recently about the system risks for crypto associated with algorithmic stablecoins, namely with Terra's LUNA and UST. Now there's fresh FUD from Galois Capital that the Luna Foundation Guard (LFG) will fail to keep UST's peg sometime this week - as LFG announced it was using $1.5 billion to help arbitrage firms keep said peg and accumulate more bitcoin.
All-in-all, note this week will be very choppy so be careful. This is not the time to capitulate and entering a late short here is quite risky as the reward is low. I'm expecting the pain to end Wednesday, followed by relief - but I can be wrong.
Chart art: panic sellers mourn.
Three things: bottoms chop.
- Shiv Sakhuja argues "now is the time to work in web3".
- Jason Choi argues "every crypto cycle tops the same way, but bottoms differently". I would say the opposite, but agree with the general conclusion.
- Ken Deteer explains "the DeFi attack patterns everyone should know".