Morning Crypto Briefing: Bitcoin Price Crashes Into $23Ks Amid Growing Fed Tightening, Recession Fears

Key Points

• Cryptocurrency markets continue to crash, with the downside accelerating on Monday amid growing Fed tightening/recession fears.  
• Bitcoin was last down 11% in the mid-$23,000s and Ethereum down over 17% below $1,200.  
• Tron’s USDD has lost its peg as TVL collapses and popular crypto lending/borrowing Celsius Network has paused withdrawals.  

State Of The Market 

The crypto crash that really got kicking last Friday extended over the weekend and has accelerated on Monday, with traditional asset classes selling off nearly across the board at the start of the week. As a reminder, last Friday’s US Consumer Price Inflation (CPI) data was not only hotter than expected but showed a continued broadening of price pressures in the US, with analysts interpreted as piling pressure on the Fed to be more aggressive when it comes to monetary policy tightening in order to get inflation under control.  

Total cryptocurrency market capitalization was last just below $940 billion, according to TradingView data, down around 11% on Monday alone and down more than 20% in the last four days. Recent downside goes hand in hand with a sell-off pressuring global equities, with index futures of the S&P 500 hitting fresh annual lows under 3,800 on Monday, down around 7.5% since last Thursday.  

With the headline rate of annual CPI having hit a new four-decade high of 8.6% in May, markets are beginning to price in the possibility that the Fed opts to go with a 75 bps rate hike at its upcoming policy meeting on Wednesday. This remains far from the market’s base case, but the fact that it is now in the discussion is a key reason why risk appetite is being battered so badly on Monday.  

Cryptocurrencies tend to prefer a lower interest rate environment given the lower “opportunity cost” of not being invested in safe-haven US government bonds. But US government bond yields have surged since Friday, with the 10-year yield hitting fresh multi-year highs above 3.25%, up more than 20 bps since last Thursday.  

Fears about central bank tightening are not the only factor weighing on sentiment. A widely followed survey released by the University of Michigan every month showed last Friday that Consumer Sentiment in the US hit a record low (going all the way back to the 1970s) in June. The word “recession” is on every macro analyst/economist’s lips and the likelihood that the Fed pulls off its much hoped-for “soft landing” is seeming a more and more distant prospect.  

Real Vision CEO and widely followed macro guru Raoul Pal said in an interview over the weekend that the US economy is due a “severe” correction, and that he expects more pain for both equity and crypto investors in the short-term as a result. “We’ve got the worst ahead of us… It’s not fully priced in by markets… It’s going to be faster than people expect… It’s going to be more severe than people expect,” he remarked ominously. However, Pal doubled down on his long-term bullish thesis for quality digital assets given that he expects crypto adoption to continue to accelerate in the years ahead.  

BTC Craters To Fresh Annual Lows In $23,000s, ETH Collapses Into $1,100s 

The world’s largest cryptocurrency by market cap Bitcoin was last trading lower on the day by more than 11% just above the $23,500 level, its lowest point since December 2020 and with many bears now calling a return back to sub-$20,000 levels inevitable. That means Bitcoin’s market cap was last around $450 billion.

Ethereum was faring much worse in tandem with pain being felt across the major altcoin space, with ETH/USD last down more than 17% in the upper-$1,100s per token on Monday, having shed around a third of its value since last Friday. Many are calling for a fall to sub-$1,000 levels in the near future, amid a lack of notable support levels to the downside.  

Ethereum’s market capitalization was last just below $150 billion. Meanwhile, other major altcoins such as Binance’s BNB, Ripple’s XRP, Solana’s SOL, Cardano’s ADA and Dogecoin were all nursing losses in a similar ballpark.  

Algo Stablecoin Troubles Return, DeFi Woes Spread To CeFi 

With the cryptocurrency market currently in acute stress, risks associated with poorly/under-collateralized so-called algorithmic stablecoins are back in focus. The Tron blockchain’s recently released Decentralised US Dollar (USDD), which many see as a near-carbon copy of Terra’s ill-fated UST, was last trading at under $0.99 on Monday, having been as low as $0.9715 earlier in the session.  

USDD’s (for now) modest de-peg, much like the early stages of the TerraUST/LUNA collapse back in May, has gone hand in hand with a collapse in the value of Tron’s native token TRX, which was last trading at under $0.0650, more than 15% below earlier session highs above $0.0750. Amid the turmoil in USDD and TRX, Tron’s Decentralised Finance (DeFi) ecosystem is unsurprisingly seeing large outflows.  

Trade Value Locked (TVL) in Tron blockchain smart contracts dropped around 30% on Monday to $4.15 billion versus Sunday’s levels closer to $6.0 billion, DeFi Llama data showed. Tron had been able to attract a surge in TVL in recent weeks as DeFi investors hunted for attractive stablecoin yields following the collapse of UST earlier last month.  

The most recent downturn in cryptocurrency market risk appetite and the latest USDD peg woes has seen TVL across the entire DeFi space crater in recent days. Having remained close to $100 billion from mid-May to last Friday, total DeFi TVL has now dropped to around $75 billion on Monday, DeFi Llama data showed.  

So-called Centralised Finance hasn’t been able to escape the recent turmoil. Popular centralized crypto financial services provider Celsius Network, which allows users to deposit crypto for healthy yields, as well as borrow against their crypto collateral, halted investor withdrawals over the weekend following rumors it had become insolvent. The company cited “extreme market conditions”.  

The Celsius Network’s CEL token fell as much as 70% on Monday, with some fearing that CEL might be headed for the same fate as LUNA. CEL was last trading lower by just over 40% on the day just above $0.20, where it resides around 97.5% lower versus last year’s highs around $8.0 per token.  

The recovery from earlier sub-$0.10 session lows was in part spurred as competitor centralized crypto financial service provider Nexo, which offers similar products, sent Celsius a letter offering to buy “substantially part of or all of the remaining qualifying assets … comprising mostly or fully of collateralized loan receivables secured by corresponding collateral assets, as well as brand assets and the customer database”.  

Elsewhere in news related to the Non-Fungible Token (NFT) space, a survey conducted by DEXterlab revealed that the number one reason why investors by NFTs is to “make money”, while the second most common reason is to belong to a community and “flex”. Separately, a co-founder of Yuga Labs, the creators of the Bored Ape Yacht Club (BAYC) NFT collection and the developers of Apecoin warned on Twitter over the weekend that BAYC social media accounts might have been compromised.  

Regulation Update: US Looking To Contain Anonymous Wallet Risks, SK Crypto Exchanges Form Consultative Body 

The US is working on measures that will contain risks related to unhosted, anonymous crypto wallets, Deputy Secretary of the US Treasury Wally Adeyemo said during a speech at CoinDesk’s crypto-focused Consensus 2022 conference over the weekend. Financial institutions should be aware of the individuals they transact with in order to ensure they are not promoting/enabling criminal activity, he stated.  

Adeyemo did not outline exactly how the government plans to tackle to risks related to anonymous wallets but did say that the government is not intending to clamp down on broader crypto innovation.  

Still reeling from the fallout of the collapse of the Terra blockchain’s native LUNA token and associated UST algorithmic stablecoin last month and in the face of increasing scrutiny from the government, five South Korean crypto exchanges have joined forces to form a new consultative body that would seek to prevent such disasters from occurring again in the future.  

Upbit, Bithumb, Coinone, Korbit and Gopax reportedly want to have agreed on a strict, standardized screening mechanism that will apply to all new crypto tokens/digital assets seeking to be listed. The plan reportedly emerged after meeting with government officials.