Crypto Market Repeats Flash Crash, Recovery Pattern
Cryptocurrency markets remain highly unpredictable, going though another flash crash followed by a recovery. BTC moved down to $28,928.95 ahead of the weekend, on trading volumes of $39B in the past 24 hours. BTC now moves on both sides of the $29,000 level, once again putting into play a more bearish scenario.
Bitcoin (BTC) briefly dipped to the $28,400 range late on Thursday, threatening to break down support levels that could lead to lower valuations. This more is long expected and for some, actively triggered by whale traders.
Ethereum (ETH) crashed by nearly 10% to under $1,800, on more expectations of ETH 2.0 delays and the overall fragility of the system. Avalanche (AVAX) was also among the biggest losers, erasing 11% to $24.25. The current crash happens after a prolonged period of bearish expectations, also waiting for one more big capitulation event.
Bitcoin Vs. Crypto: Who Wins Out
During the latest bull market, the term of “crypto” acquired an additional meaning. It came to represent not only tradable coins and tokens, but also decentralized finance and all projects promising high returns. Under the “crypto” umbrella, there were many projects, from lending to issuers of stablecoins and NFT collections tied to staking and passive income.
Some of those projects relied on a constant inflow of new buyers, leading analysts to see thinly veiled Ponzi schemes. In the case of Terra, the notional value was self-derived, leading to a rapid unraveling.
This highly risky scene made Bitcoin maximalists even more aggressive in their statement that BTC had little to do with “crypto” in a way of offering high returns or easy gains.
The latest flash crash also caused a decoupling of BTC from the rest of the assets, with market cap dominance jumping immediately to 45.4%, while Ethereum’s dominance slid to 18.2%. BTC has not achieved this level of market dominance since late 2021, and now shows its strength relative to altcoins. Maximalists also add to the holding trend of BTC, and its potential as a store of wealth and censorship-resistant payments.
Investors are also still shocked by the crash of Terra (LUNA) and more skeptical of attempts to decentralize financial innovation. While DeFi is still important, some of the liquidity hubs may slow down their growth.
The NFT market has also slower down, with even the biggest collections losing their previous high valuations. NFT trading is highly unpredictable, and may rely on short-term gains based on high-profile collections.
Will BTC Break Out
BTC now awaits the next week’s closing to see if it can abandon its relatively tight range of the past few weeks. The eight-week streak of red candles is setting expectations for a reversal and possibly a trek to a higher valuation.
This time, markets are more cautious, leading to 74.66M liquidations for BTC after the latest price move. A range of $1,000 within a day affected long positions more heavily, hence the dip closer to $28,000. Later the recovery also liquidated some of the short positions.
At the same time, spot coin buying continues, with wallets holding 1 BTC expanding.
Some of the retail wallets in the money are still holding onto their coins, having seen a variation of market cycles.
BTC remains highly risky, but has entered a trend of decoupling and a shift in demand. Buying from a Canadian ETF further boosts demand, while more than 12M coins are more or less inactive.
Terra 2.0 Launches on Friday
The now-defunct Terra blockchain will relaunch as previously expected. The new asset will drop on Friday, attempting to compensate small-scale investors first. Bitfinex is one of the first exchanges to claim participation in the new asset airdrop.
However, the announcement failed to spark enthusiasm, as there were expectations the new LUNA could also fail. With no UST to boost price action, Terra may remain another Layer 1 blockchain attempting to bring in app builders.
FTX, one of the top derivatives exchanges, is also on board with Terra 2.0, as well as other markets. This time, Binance will not respond, despite being a large-scale LUNA holder.
The fate of Terra hinges on an overall recovery in DeFi markets. With ETH at around $1,800, collaterals may be starting to feel pressure. Other projects have also promised high returns and a bear market may diminish their potential.
Despite the price drop, this time TRON (TRX) managed to preserve its level at around $0.085. TRX is still considered undervalued, but it is too early to tell if this support is artificial. Overall, TRX receives outsized interest after years of neglect for adding the USDD stablecoin and promising high returns for staking it. Investors once again were warned the risks were too high and that TRON was repeating the Terra model, potentially leading to rapid devaluation.
The USDD stablecoin marketcap stalled at around 575M tokens, for now slowing down the daily growth. TRON also carries the larger part of Tether (USDT) in circulation, using one of the most liquid assets for trading.
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