Bitcoin has continued its dramatic descent, falling below US$29,000 to its lowest point since December 2020. It’s currently hovering around that $29,000k support level, with everyone wondering which way it’s going next.
BTC/AUD price chart. Source: CoinMarketCap
The US Consumer Price Index (CPI) figures were published on May 11 and the knock-on effect saw Bitcoin piercing the $30,000 support at US$28,170. April’s annual CPI figure is 8.3 percent, down 0.2 percent from the previous month, yet the update sent Bitcoin into a frenzy, its price falling from US$31,700 to $28,170 in as little as 20 minutes, followed closely by a rebound to approximately $31,600:
Just an observation, but all of the tradfi guys who are laughing at bitcoin currently we’re doing the same in March 2020.
Doesn’t mean a bottom is in, it’s just funny how the goalposts can move.
The sea of red in the crypto market has caused issues with Terra’s UST stablecoin, which relies on bitcoin as a reserve currency. The plummeting LUNA price has also caused liquidations totalling nearly US$900 million.
Terra Stablecoin Crashes
During the past week, a marketwide correction has been ravaging the cryptocurrency market, with LUNA hit harder than others. This is mostly due to a negative feedback loop that happened when the chain tried to stabilise its native TerraUSD (UST) algorithmic stablecoin. UST works with its sister token, LUNA, to maintain a price of around US$1 using a set of on-chain mint-and-burn mechanics.
The Terra public blockchain has seen massive growth in its ecosystem and the use of its TerraUSD (UST) stablecoin, mostly due to its key DeFi platform Anchor’s 20 percent returns. LUNA is the primary asset used to regulate and maintain the value of the algorithmic stablecoin. Created by Terraform Labs and its CEO/co-founder Do Kwon, the stablecoin used reserves of BTC to back its 1:1 value against the US dollar.
LUNA/USD price chart. Source: CoinMarketCap
The UST software automatically adjusts the price of LUNA, so that $1 of LUNA always matches $1 UST, thereby mimicking the US dollar. The asset was trading at around US$90 during the past month and has since dropped to below $1, losing about 99 per cent of its value in a matter of days.
As reported earlier this month, the stablecoin lost half of its value because it started losing its peg to the dollar:
An $18 billion stablecoin is losing its dollar peg with all the magical chaos of algorithmic stables, with a dash of Bitcoin systemic risk drama.
This is $18 billion in wealth that we’re seeing evaporate before our eyes, and people are losing money.
Todd Phillips, director of financial regulation and corporate governance, Center for American Progress
Liquidations Triggered by Collapse of UST
As the price of Bitcoin crashed past US$30,000 – a 10-month low – over-leveraged traders were also caught out. According to data from Coinglass, in the past 24 hours almost 300,000 traders have been liquidated for US$896 million:
"People are still processing this but this is the Lehman moment for crypto"
Hearing about a lot of funds possibly insolvent from Luna meltdown
This situation stands as a reminder of why stablecoins – which play a pivotal role in the functioning of decentralised finance – not only pose a risk to individual traders but also a systemic risk to the entire crypto ecosystem if not managed responsibly.
Let’s take a closer look at today’s altcoins showing breakout signals. We’ll explain what the coin is, then dive into the trading charts and provide some analysis to help you decide.
1. Avalanche (AVAX)
Avalanche AVAX is the fastest smart contracts platform in the blockchain industry, as measured by time-to-finality, and has the most validators securing its activity of any proof-of-stake protocol. Avalanche is blazingly fast, low-cost, and green. Any smart contract-enabled application can outperform its competition on Avalanche.
AVAX is the native token of Avalanche. It is a hard-capped, scarce asset that is used to pay for fees, secure the platform through staking, and provide a basic unit of account between the multiple subnets created on Avalanche.
AVAX Price Analysis
At the time of writing, AVAX is ranked the 13th cryptocurrency globally and the current price is US$29.82. Let’s take a look at the chart below for price analysis:
AVAX‘s 70% gains during Q1 ended with an almost 49% retracement as the rest of the altcoin market dropped from last week. Bulls stepped in near the 52.8% retracement of Q2’s move, creating a consolidation that ended with the bullish impulse to resistance near $44.35.
With the 9, 18 and 40 EMAs stacked bullish and a bullish higher-timeframe trend, it’s reasonable to anticipate retracement to possible support before further bullish expansion.
Near the 40 EMA, a broad zone from $38.15 to $30.45 could see interest from bulls before further expansion. If this level fails, bears might capitalise on any sharp moves down in Bitcoin, aiming for possible support near the 70% retracement, at $27.70, and potentially lower to a higher-timeframe support zone between $25.42 and $23.80.
If the higher-timeframe recovery trend resumes and the current resistance near $44.35 breaks, the wicks near $48.84 and the new monthly highs may see profit-taking.
2. Zilliqa (ZIL)
Zilliqa ZIL is a public, permissionless blockchain designed to offer high throughput with the ability to complete thousands of transactions per second. It seeks to solve the issue of blockchain scalability and speed by employing sharding as a second-layer scaling solution. The platform is home to many decentralised applications, and it also allows for staking and yield farming. The native utility token of Zilliqa, ZIL, is used to process transactions on the network and execute smart contracts.
ZIL Price Analysis
At the time of writing, ZIL is ranked the 77th cryptocurrency globally and the current price is US$0.04601. Let’s take a look at the chart below for price analysis:
ZIL‘s 80% drop found a low near $0.04238 before closing over a weekly high around $0.05082. This daily close over the high could signal a shift in market structure that might reach probable resistance near $0.05732.
A sustained bullish move may target the swing high at $0.05960. If this stop run occurs, a run beyond the high into probable resistance near $0.06288 and $0.06445 is possible.
Bulls could buy a retracement to possible support near $0.04018, just above the weekly open. A bearish turn in the marketplace may propel the price toward possible support near $0.03876.
However, relatively equal lows near $0.03734 and $0.03624 provide an attractive target for bears if the market resumes its bearish trend. A run on these lows might find support between $0.03415 and $0.03266.
3. THORChain (RUNE)
ThorChain RUNE is a decentralised liquidity protocol that allows users to easily exchange cryptocurrency assets across a range of networks without losing full custody of their assets in the process. The native utility token of the THORChain platform is RUNE. This is used as the base currency in the THORChain ecosystem and is also used for platform governance and security as part of THORChain’s Sybil resistance mechanisms – since THORChain nodes must commit a minimum of 1 million RUNE to participate in its rotating consensus process.
RUNE Price Analysis
At the time of writing, RUNE is ranked the 55th cryptocurrency globally and the current price is US$2.90. Let’s take a look at the chart below for price analysis:
RUNE abruptly rallied after retracing nearly 60% from its November highs, climbing 90% during early March.
Bears are currently taking shorts in a contested area between $2.70 and $3.23. This area saw inefficient trading on higher timeframes. It could serve as support if the price trades through its high end and retests it – or as resistance if the price breaks back below.
The closest support rests just below, near $2.63. The old high at this level could support a rally into resistance near $2.95.
A move through the closest resistance might target the consolidation midpoint near $3.25, near the 29% extension of the current rally. If this level breaks, bulls might target an inefficient area near $3.45 and beyond.
These coins have high liquidity on Binance Exchange, so that could help with trading on AUD/USDT/BTC pairs. And if you’re looking at buying and HODLing cryptos, then Swyftx Exchange is an easy-to-use popular choice in Australia.
The sudden de-pegging of TerraUSD (UST) and the associated breathtaking decline of Terra (LUNA) over the past few days has triggered huge falls across the wider DeFi market, extending beyond those projects directly linked to the Terra ecosystem.
While projects built on Terra have been hardest hit, the damage has spread widely. DeFi tokens on virtually all blockchains are now seeing sizeable declines, even if they have no direct link to the Terra ecosystem:
1/ Extreme volatility produced a series of collateral effects across the Terra ecosystem, primarily derived from the short-term peg deviation of $UST and its impact on the volatility of $LUNA and levers of the Terra protocol. There’s a lot to unpack, so let’s dive in 👇
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) May 24, 2021
Terra-based DeFi Projects See Massive Declines
According to CoinGecko, the native token for Anchor Protocol (ANC), the largest DeFi protocol in the Terra ecosystem, is down over 90 percent since May 7, falling from US$2.14 to US$0.19 at the time of writing.
Other prominent Luna-based DeFi projects have also taken huge hits. Since May 7 the native token of Astroport (ASTRO), an automated market maker protocol, has dropped 89 percent and Mars Protocol (MARS), an on-chain credit protocol, is down almost 65 percent.
At the time of writing the native cryptocurrency of the Terra blockchain itself, LUNA, is down an astonishing 99.6 percent since May 7, trading at a mere US$0.29. Just over a month ago it hit its all-time high of US$119.18.
The Luna Foundation Guard, the group tasked with stabilising UST’s value, is currently seeking an additional US$1 billion capital to attempt to restore the stablecoin’s peg and potentially save the Terra ecosystem from complete collapse – a goal that is, sadly, beginning to look unachievable:
An $18 billion stablecoin is losing its dollar peg with all the magical chaos of algorithmic stables, with a dash of Bitcoin systemic risk drama.
Contagion Spreads to Connected Blockchains and Beyond
Assets from the Cosmos ecosystem have also seen large declines due to their integration with Terra through the Interblockchain Communication Protocol. CoinGecko shows that since May 7, ATOM is down about 47 percent, while DeFi tokens Mirror Protocol (MIR) and Osmosis (OSMO) are down 73 percent and around 50 percent respectively.
Virtually all DeFi projects across all blockchains have been negatively impacted by this ongoing collapse. According to data from DeFi Llama, total value locked (TVL) across the entire DeFi market has dropped more than 21 percent in the past 24 hours and, since April 4, TVL is down over 48 percent – now sitting at US$120.17 billion, down from US$231.5 billion.
Of the top 10 DeFi projects listed on DeFi Llama, every one has seen seven-day losses of TVL in excess of 27 percent:
7-day losses of TVL experienced across the board. Source: DeFi Llama
Diversifying your risk is an old-school rule that helps keep an investment portfolio safe, and the same applies to a crypto portfolio. So says Richard Galvin, co-founder and CEO of Digital Asset Capital Management (DACM), who has been at the helm of the world’s highest-ranked, long-only crypto fund for almost five years:
Digital Asset Fund was the #1 performer in its long-only category in 2021 – same position as 2020 after #2 in 2019 – and the #2 overall performer ( @CryptoFResearch) We had a big 2020 so crazy to have an even better 2021. Team proving it can find alpha in all market conditions pic.twitter.com/DOMs96mcrn
About 800,000 Australians own cryptocurrencies, a 63 percent increase from 2020, according to the commonwealth Treasury. Data from the Australian Taxation Office (ATO) suggests that A$227 million worth of crypto assets are held by self-managed superannuation funds, or 0.03 percent of the net assets.
Given that Bitcoin makes up 42 percent of global crypto assets, it is likely that the largest and oldest of them all is best represented in the portfolios of Australian investors, and according to some professional crypto investors that is a problem.
Richard Galvin, DACM co-founder and CEO. Source: medium.com
According to Galvin, “Our view is that only holding bitcoin as your crypto exposure would be like buying BHP as your Australian equity exposure. We wouldn’t say it is a good or a bad idea in and of itself, but the opportunity set is far, far wider in our view.
“Our Global Digital Asset Fund usually holds eight to 12 key active positions in different coins or tokens, and we feel confident that this will outperform bitcoin and [second-largest coin] ethereum as single holdings over time.”
Crypto differs from traditional assets in many respects, including the decentralised legal structures underpinning tokens and highly controversial methods of valuation. A long list of critics believe the asset class should not be invested in because of the inherent volatility and prevalence of scams and cybercrimes. But, according to the Treasury data, many people are unfazed by the risks.
Traditional Principles of Finance Still Apply
Galvin argues that despite the potential risks associated with crypto investing, the same old rules of traditional portfolio construction need to be applied, including diversification. This means that investors need exposure to “altcoins” – the thousands of digital coins other than bitcoin.
Cody Harmon, a financial adviser, says diversification matters and notes that it does not mean crypto investors need to go too far down the rabbithole deploying their money to strange altcoins, often referred to as “shitcoins” by critics.
Galvin acknowledges that the regulatory environment around certain crypto investments remains uncertain, and says that DACM’s holistic approach has helped it deliver superior returns: “[This is because] we avoided a lot of that kind of flash-in-the-pan hype stuff and bought more fundamental assets that’ve been able to weather the insane volatility better than others.”
Galvin concurs with Australian fund manager Hamish Douglass in his view that cryptocurrencies should have a broader role in investment portfolios, but they will “either be asset-backed or they will be central government-backed. So maybe there is some truth in gold coin after all.”
Both the US Federal Reserve and Treasury are eager to see stablecoins regulated by the end of this year, a move they say would improve the overall financial stability of the US economy.
A new report from the Federal Reserve has identified several risks associated with stablecoins – cryptocurrencies whose value is pegged to the US dollar – and has suggested that government-backed alternatives may reduce risks to consumers and investors.
The report follows the recent collapse in value of the stablecoin Terra USD (UST), which threatens to destabilise the DeFi market, and calls from Treasury Secretary Janet Yellen for stablecoin legislation to be enacted by the end of 2022.
Report Identifies Weaknesses of Asset-Backed Stablecoins
The Federal Reserve Board’s ‘Financial Stability Report’ identifies significant stability risks in the US economy. When discussing stablecoins the report focuses on centralised, asset-backed stablecoins such as Tether and USDC, highlighting the opaque nature of the assets backing the coins and the risks posed if or when there are runs on these coins.
Stablecoins typically aim to be convertible, at par, to dollars, but they are backed by assets that may lose value or become illiquid during stress; hence, they face redemption risks similar to those of prime and tax-exempt MMFs [money market funds]. These vulnerabilities may be exacerbated by a lack of transparency regarding the riskiness and liquidity of assets backing stablecoins.
US Federal Reserve report
Algorithmic Stablecoins Aren’t Necessarily Stable
The recent decoupling of TerraUSD from the dollar has shown yet again that algorithmic stablecoins, like their asset-backed counterparts, are not necessarily as stable as they purport to be.
Over the past few days UST has fallen dramatically in value, at one stage dropping as low as US$0.60 after its algorithm failed to function as intended and the delayed deployment of its Bitcoin reserves failed to prop up its price. According to CoinGecko, at the time of writing UST was changing hands at US$0.83.
UST isn’t the first algorithmic stablecoin to face stability issues; last year, Iron Finance plunged all the way to zero after a similar decoupling triggered a bank run costing investors millions.
Treasury Secretary Wants Legislation, Fast
US Treasury Secretary Janet Yellen. Source: ledgerinsights.com
In a further sign that legislation governing stablecoins in the US may be imminent, Treasury Secretary Yellen, when questioned on the issue during a May 10 hearing, responded that it was “important, even urgent” that Congress act. She went on to say she considers it “highly appropriate” that regulation should occur by the end of the year.
Yellen’s sense of urgency for legislation seems to have been heightened by the problems currently confronting UST:
A stablecoin known as TerraUSD experienced a run and had declined in value. I think that simply illustrates that this is a rapidly growing product and that there are risks to financial stability and we need a framework that’s appropriate.
Janet Yellen, US Treasury Secretary
This talk of imminent stablecoin legislation follows speculation last year that the US government was considering offering insurance to stablecoin holders of up to US$250,000, similar to the protections provided to account holders at insured banks.
The Luna Foundation Guard (LFG), stewards of Terra’s UST, are looking to raise over US$1 billion to shore up the algorithmic stablecoin after it lost parity with the US dollar earlier this week.
Just last month, LFG announced it had successfully raised US$1 billion to acquire bitcoin to underpin UST. Yet the stablecoin fell as low as US$0.60 on May 9, amid wider crypto market turmoil, recovering to $0.90 the following day.
Do Kwon Moves to Smooth Ruffled Feathers
Algorithmic stablecoins such as UST are meant to stay pegged one-to-one to the price of an underlying fiat currency such as the dollar, and to this end Terra co-founder Do Kwon quickly took to Twitter in an attempt to calm the market:
Close to announcing a recovery plan for $UST. Hang tight.
The group is now looking to raise fresh capital from some of the industry’s largest investment firms and market makers. The proposed deal offers investors the opportunity to purchase LUNA tokens at a 50 percent discount, with those tokens subject to a two-year vesting schedule.
Up to Four Investors in the Bailout Queue
Jump, Celsius, Jane Street and possibly Alameda are reportedly in talks regarding the deal, though none of the four has confirmed as much. The funding effort is LFG’s latest attempt to regenerate confidence in the market:
The details I have heard but might not be final:
– Jump, Celsius and Jane St. committed already, Alameda not yet – targeting $1B – $1.5B raise – 50% discount to LUNA spot with 1yr lock + monthly linear vest over 1yr – total of ~$700M in commitments as of morning https://t.co/BtqJrF0eqM
Critics say the success of any deal depends on the strength of LUNA’s price and on its key DeFi platform, Anchor, continuing to produce an up to 20 percent yield to incentivise liquidity. However, Anchor has seen its total deposits plunge from a peak of US$14 billion to below $10 billion.
Reddit users are speculating on the background story:
The Fortress decentralised finance (DeFi) protocol – a crypto borrowing and lending platform – has seen an estimated US$3 million of its funds drained. The Binance Smart Chain (BSC)-based platform fell victim to an oracle attack last weekend with the loss of “all funds”:
We are absolutely devastated. We will provide updates as soon as any information is available.
Both PeckShield and BlocSec have noted that the oracle used by Fortress “can be hijacked by anyone due to the lack of power verification”. PeckShield also warned the oracle network Umbrella about its involvement in the incident. This exploit could be used against anyone using the same Umbrella oracle, the firms warned.
In response, Umbrella released its own statement saying it was “aware of the recent exploits that may have stemmed from an Umbrella Network price feed error”.
The attacker was able to call the function and change the price of the native Fortress token (FTS) manually, then buy a large enough amount of FTS to pass a vote for a proposal to allow FTS tokens to be taken as collateral. As a result, the attacker used 100 FTS as collateral to borrow all other assets in the protocol.
The stolen 1,048.1 ETH and 400,000 DAI were then promptly bridged to the Ethereum network and washed through TornadoCash.
FTS Price Takes a Tumble
Considering the market-wide crash that’s been happening during the hack, Fortress’s native token has taken quite a beating, dropping over 60 percent in the past two weeks and down 99 percent over the past year, according to CoinGecko:
Hackers have been a major thorn in the side of the DeFi sector this year. According to PeckShield, as of the beginning of May more than US$1.57 billion in cryptocurrency had been stolen from DeFi platforms in 2022:
Azuki NFTs have plunged 63 percent in price after the project’s pseudonymous founder Zagabond revealed his previous involvement in three failed NFT projects – some of them considered rugpulls.
Azukies are currently the sixth-highest-selling collection but now both the project and its founder face a massive backlash from the crypto Twitter community, shortly after Zagabond published a blog post talking about his previous experience building NFT projects:
•Bull or bear, Azuki is building towards the future of web3. We're in it for the long term. •Builders need to experiment for web3 to challenge web2. •Azuki is built on learnings from creating Phunks & other projects. This taught me to lead, not follow.https://t.co/Z2enFov8m9
In the blog post, Zagabond revealed he was behind three NFT projects before Azukies – CryptoPhunks, Tendies and CryptoZunks – all abandoned by their founders after they failed to gain traction.
Zagabond’s approach was to share his previous work and experience in the digital art field but the publication of his post backfired within hours as several users pointed out his previous projects were scams. After the blog’s publication, Azukies went from trading at an average of 20 ETH, or approximately US$49,900, to barely 9 ETH ($21,380).
Zagabond Dismisses Accusations
Zagabond quickly dismissed the accusations, saying he and the other creators delivered everything that was promised and the fact that they had no PMF, or product-market fit (the degree to which a product satisfies a market demand), didn’t mean the projects were rugs:
Please read my post in full. We delivered everything that was promised for these collections. Do I wish they were more successful? Of course. There was no product-market fit at the end of the day, but that doesn’t mean it’s a rug.https://t.co/Z2enFov8m9
One Zagabond defender noted that if these projects had delivered their users what was promised, then the creators had no need to continue to work on them:
5/ First of all, I do not believe Phunks & Zunks are rugs.
If someone promises you something and then delivers on that promise, even if it's just an NFT, they aren't responsible for working on it anymore.https://t.co/vFejxg8DMM
It seems that consumers still have an expectation that the team and the developers will continue to work on the project in perpetuity. And as a creative, are you indebted to these community members and this project forever?
Zagabond blog post
However, the majority remained reluctant. “No PMF yet you profited millions while buyers were left holding the bag?” one user commented.
Another Twitter user shared on-chain data about the CryptoPhunks creator performing a flashloan transaction of 5,000 ETH on the NFT marketplace LooksRare:
Let’s take a closer look at today’s altcoins showing breakout signals. We’ll explain what the coin is, then dive into the trading charts and provide some analysis to help you decide.
1. Solana (SOL)
Solana SOL is a highly functional open-source project that banks on blockchain technology’s permissionless nature to provide decentralised finance (DeFi) solutions. The Solana protocol is designed to facilitate decentralised app (DApp) creation. It aims to improve scalability by introducing a proof-of-history (PoH) consensus combined with the underlying proof-of-stake (PoS) consensus of the blockchain.
SOL Price Analysis
At the time of writing, SOL is ranked the 8th cryptocurrency globally and the current price is US$53.37. Let’s take a look at the chart below for price analysis:
SOL has retraced 80% from its Q1 highs and reached possible support last week near $50.34. Resistance might begin near $80.34, which has confluence with the 9 and 18 EMAs.
A more substantial rally might reach near the swing high at $87.23 and the 40 EMA. This high is less likely to break if bears plan to continue the downtrend without a lengthier consolidation.
While not highly probable in the current market conditions, a more animated move upward could reach a wide resistance area between $94.42 and $98.94. This zone is where the last movement down accumulated positions before breaking down.
Possible support rests near $50.34, which showed sensitivity on the last test. While it could provide support again, the higher-timeframe bearish trend is more likely to propel the price into an inefficient area between $47.10 and $44.54. If the price reaches this zone, the Q1 2021 swing high near $40.13 might mark a more sensitive level.
2. Polygon (MATIC)
Polygon MATIC is the first well-structured, easy-to-use platform for Ethereum scaling and infrastructure development. Its core component is Polygon SDK, a modular, flexible framework that supports building multiple types of applications. The MATIC token will continue to exist and will play an increasingly important role in securing the system and enabling governance.
MATIC Price Analysis
At the time of writing, MATIC is ranked the 18th cryptocurrency globally and the current price is US$0.7203. Let’s take a look at the chart below for price analysis:
Since its Q1 highs, MATIC has been in a steady bearish trend, retracing nearly 55%. The price found support near $0.7020, at the 60.8% retracement level.
Last week’s sharp impulse up might have marked the start of a new trend. If so, higher timeframes suggest that $0.6839 near the 65.8% retracement and the 9, 18 and 40 EMAs may see interest from bulls. The price could reach lower, near $0.6520, and still find support.
Currently, the price is contesting a region between $0.7139 and $0.7835. Closes over this level could confirm it as new support, leading to a move higher.
However, bulls are contending with probable resistance near $0.8344, while $0.9053 is also likely to be sensitive with the nearest support and resistance this close together.
3. Stellar (XLM)
Stellar XLM is an open network that allows money to be moved and stored. When it was released, the goal was boosting financial inclusion by reaching the world’s unbanked – but soon after, its priorities shifted to helping financial firms connect with one another through blockchain technology. The network’s native token, lumens, serves as a bridge that makes it less expensive to trade assets across borders. All of this aims to challenge existing payment providers who often charge high fees for a similar service.
XLM Price Analysis
At the time of writing, XLM is ranked the 27th cryptocurrency globally and the current price is US$0.1303. Let’s take a look at the chart below for price analysis:
XLM set a high near $0.2457 in early April before retracing nearly 45% to find a low near $0.1260. The price consolidated around this level before the strong bullish impulse over the past several days.
Probable resistance near $0.1578 is slowing the bullish advance down. However, another leg might target the last swing high at $0.1722 and relatively equal highs at $0.1936. Resistance near $0.2059 could cap the move before the second swing high. Beyond these levels, little stands in the bulls’ way before reaching the swing high near $0.2356.
A retracement before a move higher might find support in the daily gap near $0.1243, just above the weekly open. Relatively equal lows near $0.1175 could also provide support. Run-on stops at $0.1105 and $0.1083 might find support in the gap beginning near $0.1020.
These coins have high liquidity on Binance Exchange, so that could help with trading on AUD/USDT/BTC pairs. And if you’re looking at buying and HODLing cryptos, then Swyftx Exchange is an easy-to-use popular choice in Australia.
