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Darkest Hours - Chung's Weekly Digest (5/15)

$UST’s failure questions the whole decentralized ethos as market is left reeling.

The Decentralized Ecosystem

The whole crypto market plummeted into complete chaos as two of the highest capped crypto assets sank to new lows. $UST’s inability to maintain its peg to the US dollar has wide ramifications for the crypto market. 

First, it means that decentralized money is seemingly not possible. Secondly, it builds a case to push for a strict stablecoin regulatory framework. Many are awaiting the political backlash to recent events and it seems there may well be cause for concern.

Source: Terra’s UST meltdown could trigger a crackdown on stablecoins and further impede the adoption of crypto assets

The market was spooked by the fact that Luna Foundation Guard's (LFG) Reserves could be deployed to defend the peg. The anticipated selling pressure led to massive sell-offs as most crypto assets recorded significant drops. 

Source: Solana was trading at around $75 a week ago before dipping below $45 as market-wide capitulation took place 

The flurry of negative news did not stop with the $LUNA and $UST fiasco. $USDT, the largest stablecoin by market cap, also lost its peg as it tumbled to a low of $0.94 on early Thursday. The failure of $UST has led many to believe that centralized stablecoins are safer alternatives because they are fully collateralized. 

Delphi Research, an independent research firm in a post released on May 12 explains the mechanics behind $USDT. The team said

“USDT, on the other hand, has ~36% in commercial papers, a form of unsecured debt, that has a higher risk profile. This means that if those commercial papers default, USDT is likely to be undercollateralized and backed by less than 1 USD.” 

If redemption exceeds Tether’s liquid cash reserves, collateral will be liquidated to honour redemption. $USDT has a market cap of $75.86 billion, therefore posing a real danger to the entire financial insitution. 

Weekly Recap

Market Sentiment

Source

The market continues to be affected by a slew of negative events that took place recently. $LUNA, a $40 billion crypto asset that crashed is a stark reminder that not all is well in the decentralized ecosystem. Crypto assets are relatively volatile and the increased risks are often linked with cryptos with lower market caps. $LUNA has become the exception and a grim reminder to those that are heavily invested in this space. 

Source: Long positions are building up on Bitfinex as traders are anticipating that the recent capitulation will end soon

Technical indicators are also signaling a potential bullish rally that might take place soon. An inverse head a shoulders is forming on the hourly time frame. Whether this relief will materialize is another matter but we will indeed find out in the coming weeks.

Source: The Bitcoin market is in an ‘oversold’ territory and would likely see a relief bounce soon

 Coins to Watch

  • Bitcoin ($BTC) - Bitcoin is the main coin to monitor. If Bitcoin dips, other crypto assets will be adversely affected. 
  • Bitcoin has to recover before other major altcoins start to regain its lost grounds. 
  • Solana ($SOL) -  Solana’s price took a beating after it suffered yet another outage. Solana’s ecosystem houses many innovative projects that continue to build as the market slow down. 
  • Solana offers a very attractive risk/reward ratio. It is sufficiently stable with real value that is building on its platform. 
  • Many projects that are faced with high transaction costs and scalability issues on the Ethereum network are looking at Solana.  
  • PancakeSwap ($CAKE) - The leading Decentralized Exchange on the BNB Chain is making sweeping changes to its tokenomics. 
  • The team in PancakeSwap is setting a maximum supply cap at 750 million and is also introducing benefits for locked tokens. 
  • The new tokenomics will drive value, retain its loyal community members and improve on its sustainability. 

Darkest Before Dawn

The recent capitulation is a stark contrast to the euphoria in November last year. Positive news are no longer providing the catalyst for price upswings. The market is severely dampened and liquidity is slowly exiting the crypto market. This is the perfect opportunity to start accumulating before prices start to recover.  

Come back next week for another iteration of Weekly Digest: Chung's Picks of the Week from BSC News. Be sure to follow Chung Yee on Twitter.

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