Bitcoin (BTC) Faces More Downward Pressure on Continued Fears
Bitcoin (BTC) is on the verge of breaking down under several trendlines. The leading coin moved under $29,000 mid-week, raising the question of yet another week of BTC losses for a record streak. BTC sank to $28,804.17, with Ethereum (ETH) breaking down under $2,000. The fears of a bear market may be more fundamental for ETH, as the token is still in the middle of a large interconnected ecosystem of leverage. ETH also saw a sudden spike in leveraged positions, possibly expecting more dramatic price moves.
The latest price action sparked expectations for revisiting a lower price range, deepening the bear market of 2022. BTC saw expectations of moving down closer to $20,000, to repeat the crash from previous peak cycles where prices erased 85% of their value.
BTC now faces a new cycle of growing interest rates by the US Fed, as well as a withdrawal of some stablecoin liquidity.
Tether Diminishes Supply, Remains Stable
This time, Tether (USDT) showed a reverse reaction. Instead of minting new tokens, the asset is burning its supply. In the past two weeks, the supply dwindled from $83B equivalent down to $74B.
Contrary to expectations, USDT did not lose its peg and most fluctuations see the token only down to $0.99. This is not an unusual price move for USDT, and actually proves the stress test is showing the stability of Tether’s stablecoin.
USDC, which never lost its peg, also saw its supply unchanged at 52B tokens. But USDC trading was slow at $5.5B equivalent in 24 hours. USDC is more of a safe haven on audited exchanges and remains far behind the trading volumes of USDT.
Will BTC Await Another Capitulation
BTC managed to bounce off the worst Extreme Fear indicator. The Crypto Fear and Greed Index moved up from a low of 8 points up to 14 points.
However, there are still fears that a deeper breakdown may translate into a capitulation event. More buyers from the top are out of the money, and some may be selling. The current range is also below some of the big corporate investments.
A capitulation event may bring the scenario of erasing more value to a bottom near $13,000 per coin.
The exact movement may also hinge on leveraged positions available to liquidate. The recent downward price move saw BTC liquidate around $27M, just 10% of the liquidation from last week.
On the positive side, BTC seems to have shaken down the shock of the Terra liquidation. BTC may also be seen as safer compared to smaller altcoins, which may more easily erase 90% of their value or more.
BTC may also have a mid-year rally, while still expecting a reaction to the next FOMC meeting of the US Federal Reserve. Even during bear markets, BTC has performed short-term rallies, revisiting previous highs.
During the latest downward price move, there is also no sign of miners capitulating. Mining is profitable at much lower BTC prices, and most mining farms may not need to sell all coins to cover costs.
New mining equipment is also unrolling, making the network more efficient. Both US-based and Chinese mining pools are growing their competition for BTC rewards.
The BTC mining rate is also setting records almost daily, almost tripling since the dip in May 2021.
Will Terra Try to Return to LUNA, UST
The Terra LFG and LUNA are creating more problems than they are solving. Malicious sites are already trying to exploit Terra wallets by making them sign links that sweep all assets. Additionally, multiple forks and relaunches have been announced.
There is a proposal voted now by validators on relaunching Terra as Terra Classic. Do Kwon, the project’s founder, keeps seeking ways to rebuild, despite being the recipient of a new lawsuit from South Korean retail investors.
One of the accusations against Terra is that the project may have compensated validators and big holders, while small-scale investors are still left holding zero-value assets. The vote is also mostly decided by validators that represent small owners and stakers.
Recently, Binance also announced it would not seek redress for its significant LUNA holdings and UST wallet, instead urging Terra LFG to compensate small investors first.
The consensus is that Terra has no reserves and has managed to sell 80K BTC over the course of about a week. Even with no reputation problems, relaunching an algorithmic stablecoin may be impossible in the current market conditions.
Compensating LUNA holders will also be a difficult task, as some of the LUNA and UST was moved to exchanges or other chains and protocols. For now, traders are looking for ways to record balances from before the attack, to avoid rewarding the suspected attacker once again with more LUNA and UST in the 2.0 version, provided it manages to launch.
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