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Terra's collapse causes crisis for Avalanche

The collapse of Terra's UST project, which was the third-largest stablecoin by market cap, has cast a shadow over the entire decentralised finance sector. Over the last 30 days, cross-chain bridges lost 20% of their capitalisation, while the total locked value in DeFi was halved to $88 billion.



Until very recently, Terra sat in second place after Ethereum in the DeFi market, a fact that only served to increase investment in the project both among traders and potential partners. Its fans included the Avalanche team, which worked with Terra on several joint projects. In order to strengthen their partnership, the two companies even exchanged each other's coins. Terra received $200 million worth of AVAX, while Avalanche got $100 million of LUNA and $100 million of UST in return.

Before Terra's collapse, Avalanche ran into problems when trying to expand its network. As a result, the team decided to launch its Avalanche Multiverse programme, putting together a $290 million fund to lure third-party developers (we wrote about this in April). But the situation now looks increasingly dire for this project which, just a few months ago, counted itself among the Top 10 coins by market cap.



In an attempt to maintain UST's tie to the US dollar, Terra used virtually all of its 80,000 BTC reserves. However, the company's 2 million AVAX ($60 million at current prices) remained untouched. Now the company is deciding what is going to happen to the project, and one option it is considering is to use its remaining reserves to compensate small investors for losses they incurred.

The problem is complicated further by the initiation of an investigation by South Korean law enforcement, as well as by the South Korean Information Agency's revelation that Terraforms Labs owes 100 billion won (~$79 million) to the country's tax authorities. If Terra suddenly decides to take its 2 million AVAX out of the market, this will lead to a significant drop in the token's value and could spark panic selling among its remaining holders.


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Tether changes its reserves amid storm of criticism

The collapse of Terra's UST project has led many to reassess the value of other similar stablecoins. Well before this recent crisis, Tether's USDT had already come under fire on account of its not keeping its promises regarding the composition of its reserves. As a consequence, the market capitalisation of the world's biggest stablecoin fell by 12% within the space of two weeks.



Tether had initially pledged to back every single USDT issued with $1 on its bank account, a promise it failed to keep. In 2018, the company printed almost $1 billion to provide as a loan to Bitfinex when the crypto exchange found itself faced with a liquidity crisis.

The truth came out when the New York District Attorney's office conducted its own audit. As part of an out-of-court settlement, Tether was ordered to pay a fine of $18.5 million, also accepting a requirement to publish regular reports of its reserves. It was thus revealed that Tether's reserves are made up of less than 5% fiat currency, with over half consisting of corporate securities. After the audit, Tether removed the reference to "dollar reserves" in its fund safeguarding statement, adding crypto assets and credit income in its place.



LUNA's dramatic decline and the loss of parity of Terra's UST stablecoin have once again brought the issue of Tether's liquidity to the fore. On 12 May, the USDT exchange rate dipped to $0.94, and the panic even spread to Bitcoin, leading the original cryptocurrency to fall to $25,000.



Tether managed to bring the situation under control, though the associated capital outflows coupled with insufficient reserves could lead to a repeat of the same, only with worse consequences.

As of 2022, the company has been actively trying to rebalance its reserves, as is detailed in a report (from 31 March) recently published by Cayman Islands-based MHA Cayman. Consequently, its total consolidated assets slightly exceed the requirements, coming in at $82.4 billion. Out of these, corporate securities account for around a quarter, or $20.1 billion, while in Q4 2021, this value stood at $24.2 billion. Tether promises to reduce these by another 20% in Q2 2022.

As the portion of corporate securities has fallen, the amount of reserves held in US Treasury notes has risen from $34.5 billion to $39.2 billion.



It's important to note that this report is not an audit but is rather classified as financial information on the basis of accounting records. MHA Cayman is very clear that its assessment of Tether's assets is based on their current status and does not take into account any potential large-scale market correction or the default of any of its major debtors.


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Mimblewimble threatens to get Litecoin delisted

Once among the Top 5 cryptocurrencies, Litecoin now finds itself in 18th place with a capitalisation of $4.9 billion. But now, this position is also under threat after an update from Mimblewimble highlighted the risk of Litecoin being delisted from several major South Korean exchanges.



The latest Mimblewimble (MVEB) update enables users to make confidential transactions by combining multiple transactions in one log entry. The blocks also undergo verification, but the record of previous transfers now appears as a selection of random symbols. The fact that prior history is no longer included in the record means that the network's productivity is now higher.

MVEB was launched on Litecoin's blockchain last week. Then, on 23 May, leading South Korean exchanges Bithumb and Upbit to issue a warning to investors about the risks connected with this update. For starters, any payments made with MVEB cannot be refunded under any circumstances. Meanwhile, there is a real possibility of Litecoin being delisted since confidential transactions hinder KYC (Know Your Client) and AML (Anti-money laundering) policies.



Back in 2019, South Korean exchanges delisted anonymous coins en masse under pressure from regulators, leading to average losses of around 25% in the space of a month. Now they have Litecoin in their sights. The coin could correct to $53 if it suffers the same fate.

What's more, MVEB has less protection and a lower level of confidentiality than Monero and Zcash. With the development of quantum computing, its current protection algorithm will no longer be relevant. However, it's unlikely these arguments will stop South Korean exchanges from tightening the screws.

The problem is exacerbated by the recent collapse of Terra (LUNA). Representatives of South Korea's major crypto exchanges were called before the country's parliament to explain the circumstances surrounding huge investor losses, while the Seoul police department sent them a request to freeze the assets of Luna Foundation Guard to prevent any further withdrawals of funds by potential fraudsters. The negative news climate can only increase the likelihood of Litecoin being delisted soon.


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Bitcoin's abysmal new low

The crypto news climate remains negative as institutional investors continue to pull out capital from digital assets. This is putting pressure on Bitcoin, which is just on the cusp of breaking one record that nobody will begrudge it: eight consecutive weeks of week-over-week declines.



Capital outflows from cryptocurrency investment funds last week reached a peak unseen since July 2021 as $141 million was wiped off its value. The total amount of capital managed by funds has fallen to $38 billion.



Investors are withdrawing funds from high-risk assets as a result of the Fed's monetary tightening policies. We are seeing this trend repeated across a wide range of financial instruments, including the stock market, as a result of which the US dollar index hit a seven-year high.

Cryptocurrency exchanges are seeing strong outflows of Bitcoin alongside falls in transaction volumes. The total amount of funds held on crypto exchanges has similarly dropped to 2.5 million BTC, with Coinbase boasting the largest reserves with a 34% share of total funds.



The low network activity is translating to a drop in commissions. Following the recent spike caused by the collapse of Terra (LUNA) and the rush to Bitcoin as a relative safe haven, total commission fees have now dipped to 10-12 BTC per day.



The key metrics indicate that market participants are cautious. Trading activity is on the wane, while Bitcoin is flowing out to cold wallets and options trades have seen the put/call ratio rise from 50% to 75%, suggesting that investors are seeking to hedge against the risk of future declines.

This general weakness in the cryptocurrency market will only intensify the negative opinion surrounding Bitcoin. Thus, on 22 May, ECB President Christine Lagarde stated that cryptocurrencies are not backed by anything that could provide them with some sort of stability. Then, on 23 May, Bank of England Chairman Andrew Bailey said that Bitcoin has no intrinsic value and is not suitable as a payment method.

Amid this kind of pressure, it's unsurprising that we're hearing more and more forecasts predicting a Bitcoin crash. Guggenheim Partners' Scott Minerd, for instance, has predicted a drop to $8000 and has compared crypto to the dot-com bubble of the early 2000s.


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Mining has come to a halt as graphics card prices fall

Graphics cards are predominantly used to mine Ethereum, which has now corrected more than 60% from its November 2021 high. As a result of lower mining yields, we're now seeing a long-expected decline in graphics accelerator prices.



Over the last three years, much of the crypto market's inward investment came from institutional investors (companies with holdings of over $1 million). This also includes publicly-traded mining companies with long-term investment goals.

The cryptocurrency boom of 2021 prompted many of them to boost their involvement in the mining arms race. According to figures from Digital Trends, miners accounted for 25% of all graphics cards sold, or a total of 700,000 devices. This was reflected in the higher network hash rate, which increased by more than 200% over the past 10 months.



However, we're now seeing the cryptocurrency market's growth projections being adjusted as a result of Fed policy and reduced investment by miners. For example, NVIDIA's otherwise unsuccessful CMP line (downsized mining graphics cards) flopped to post "nominal" sales, while the company's share price mimicked Ethereum's downward movement, dropping 51% from its November 2021 high.

The refusal of miners to buy graphics cards has had a favourable effect on the retail prices of such equipment. As such, the RTX 3080 now costs between $1000-$1300 on European markets, after being priced at $1800 at its peak. Meanwhile, the entire third-generation series is already going for close to the original recommended retail price.



Despite ETH's correction, mining difficulty continues to rise while yields dwindle. Now, miners are currently receiving around $0.024 per day for 1 MHash, which is comparable to mid-2020 levels. The main way Ethereum miners earn money is through commission. However, lower activity has led to a reduction in the amount of commission being paid. The only exceptions were the spikes caused by the launch of a new NFT collection and the collapse of Terra (LUNA).



Since the external economic climate remains hostile to cryptocurrencies, mining yields are expected to hold steady at relatively low levels, while graphics card prices are expected to drop by 10-20% in the short to medium term.


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The contentious rebirth of Terra (LUNA)

Despite strong community dissent, validators have voted for the creation of a second chain. New $LUNA will be made available to existing holders so long as they can provide two pictures of their holdings taken before and after the UST stablecoin's crash. The majority of major crypto exchanges came out in support of the move to create a new fork.



Terra is a cryptocurrency project that famously released an algorithmic, USD-pegged stablecoin known as UST. The project's internal coin, LUNA, was used to prop up the exchange rate, though a lack of liquidity ended up leading to a loss of UST's parity and the total devaluation of LUNA.

The collapse of a stablecoin is not a common occurrence in the cryptocurrency market. But Terra had made a lot of noise after UST made it into the top three stablecoins by market cap and its network managed to gain and retain second place in the DeFi sector, lagging only behind Ethereum. Such highs would not have been attainable without Terra's #DevelopmentTeam  and the support of its multi-million-strong user base. For this reason, validators voted to relaunch the blockchain and keep the Terra (LUNA) brand as before.



The new chain is not a fork in the classical sense because it will be built from the genesis block and will not inherit LUNA's existing transaction history. Following the relaunch, the stablecoin UST will disappear, with old LUNA being renamed Terra Classic (LUNC) and the new branch retaining the previous title of LUNA. The #DevelopmentTeam  is migrating over to the new network, with Spectrum, Nebula, Prism, Astroport and other partners similarly expressing their desire to support the new fork.

Cryptocurrency exchanges that support the blockchain's relaunch include Huobi and Binance, while Coinbase Cloud has stated that it will stop supporting Terra and any other associated chains. BitMEX, on the other hand, has adopted a wait-and-see approach, saying that the new fork will first have to achieve the necessary level of security and liquidity.



Holders of LUNC will receive new LUNA by providing two pictures:



The size of the refund and timeframes for crediting it in full will depend on the amount of UST and/or LUNA the holders currently have. Initially, holders will be sent no more than 30% of their initial holding and will receive the rest over a period of between six months and four years.

Refunding investors is a major sticking point and one reason that many community members surveyed did not support the new form, calling instead for LUNA to be bought up and subsequently burned. Under the current plan, speculators who bought UST for 10 cents will receive the same refund as investors who bought UST for $1 before the stablecoin's collapse.

The project's decision to bin its stablecoin UST could prove a big hurdle to Terra's speedy recovery. Last year, one of the major driving forces behind LUNA's ascent was investors' desire to receive a 20% annual return from staking UST on the Anchor exchange. At its peak, Terra's total locked value exceeded $17 billion, 75% of which were UST deposits.

A series of contradictions and investor pain following the loss of investments make a successful Terra relaunch and return to its previous levels unlikely. What do you think? Does Terra have a shot? Tell us in the comments section!


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Whales are dumping Bitcoin

Despite a moderate revival in the crypto market of late, major players remain sceptical. In an attempt to catch the bottom, institutional investors (companies with holdings of $1 million or more) have made a dash to the stock market, prompting the S&P 500 to recover 7% in the space of the last three days. Bitcoin, on the other hand, continues to bobble around the $30,000 mark while the number of whales in the market is falling.



The US stock market's resurgence can be attributed to major analytics agencies stating that inflation has reached its peak and that we can expect more dovish moves from the Fed, particularly when it comes to monetary policy. It is well documented that once inflation hits a ceiling, stocks usually go up, with the notable exceptions of December 1969, January 2001 and July 2008

However, major investors do not believe that either Bitcoin or the stock market has reached a bottom. The biggest selling has been by whales (accounts with 1,000 BTC or more), while the total number of such participants has fallen to mid-2020 levels.



As a result of the cryptocurrency's decline, mining has become a less profitable endeavour. For the first time in 10 months, mining difficulty corrected downwards to drop by 4.3%. Miners are turning off equipment now that Bitcoin is below its breakeven point. For this reason, several major players could review their plans to increase production capacity since lower Bitcoin prices at high difficulty levels mean longer cost recovery periods.



At present, the smaller players are holding Bitcoin back from further declines as the fear and greed indicator sits at severe lows.



Looking at this metric in isolation, this would represent a good zone for long positions. Clearly, speculators and minor investors think so, with margin trading seeing renewed interest. According to OKX, the margin credit ratio currently stands at 20 points, which suggests moderate bullish sentiment.


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A new tradition: Tron (TRX) follows in the footsteps of Terra (LUNA)

The collapse of Terra's UST, the third-largest stablecoin, and the subsequent destruction of LUNA led to a significant correction across the entire sector. Meanwhile, the decentralised finance (DeFi) market has shrunk by almost half to reach $88 billion.

It looked as if such a hit for algorithmic stablecoins ought to scare investors from putting their money in such projects, but the highly similar USDD project by Tron has managed to attract investments of $1 billion in the space of just a month, while the company's blockchain has also ascended to third place in terms of Total Value Locked (TVL) in DeFi. And this is precisely why the Tron's native TRX coin has managed to record growth in 2022.



UST and USDD are algorithmic stablecoins that are pegged to the US dollar. In order to ensure that the exchange rate remains stable, the stablecoin is linked directly to the native cryptocurrency. With UST, that's LUNA, while for USDD, it's TRX.

Terra's collapse was caused by the fact that the team could not maintain UST's exchange rate. An avalanche of selling led to a liquidity crisis that saw LUNA totally devalued. A project with a market capitalisation of $40 billion lost 95% of its value in a matter of days. Sceptics are calling the revelations the latest proof of algorithmic stablecoins' failure as an asset class.

Terra showed tremendous growth up until these unfortunate events, while its main investment stream was from the Anchor platform, where investors were paid up to 20% annual interest for staking their UST. In early May, it had TVL in excess of $17 billion, 75% of which was accounted for by UST staking. That is to say that, over the course of a year, Terra ought to have paid out $2.5 billion in dividends. However, since the system was not balanced properly and a portion of the funds were put aside to attract new participants, the crisis was inevitable.



Justin Sun unveiled USDD on 5 May. This stablecoin copies Terra's model in virtually every way, except that it promises an annual staking yield of 30%. Despite UST's recent failure, USDD has already accumulated $600 million in capitalisation over the last month, with this amount expected to grow to $1.4 billion in the near future.



In an effort to attract investment, Terra used their own Anchor platform. For Tron, this is JustLend. Over the last 10 days, its TVL has risen by $1 billion to reach a total of $2.9 billion.



Despite the clear parallel between the two projects, investors are still pumping cash into Justin Sun's new project. But is it really worth the risk?


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The 'Ethereum Killer' loses its teeth

Solana was dubbed the 'Ethereum Killer' due to its ability to quickly process smart contracts with minimal commission. In 2021, the network grew from $86 million to $52.7 billion and found itself in the Top 5 cryptocurrencies by market capitalisation for some time. However, the lack of stability is increasingly leading to reconsideration of its high assessment.



Smart contracts are in highest demand in the decentralised finance (DeFi) and non-fungible token (NFT) sectors. Before 2021, Ethereum reigned supreme in this segment of the crypto market. However, as dealings with smart contracts grew, so too did the load on the network and its commission, which fairly frequently exceeded $50 per transaction.

Solana quickly won popularity with its ability to process over 50,000 transactions per second and commission below $0.01. It made its debut on the NFT market in August. By November, the NFT marketplace Magic Eden, with support from SOL, topped the market favourite, OpenSea, in terms of the number of transactions. November also saw the peak of Solana's staked funds in DeFi, reaching a volume of $12 billion and occupying a market share of 7%, while its coin traded for $240 and higher.



As a result, Solana ran into the problem of growth. The network was not prepared for such wide demand and that kind of load. Developers were to blame in some situations, while an intentional attack was to blame in others. Since September 2021, the network has shrunk seven-fold, which has often led to a complete halt in transactions.



On 1 June, another failure occurred, leading to a 4.5-hour network outage. The reason for the delay in transaction processing was the nonce function, which is used by several crypto exchanges. The network should recognise each transaction just one time. But instead, the validators processed them several times, which led to a violation of the consensus mechanism. Solana was stopped and restarted after disabling the function.



In the subsequent 12 hours after the blockchain was halted, SOL lost 14% of its value, and social media was flooded with criticism of its developers. The coin has already shrunk by 85% from its all-time high. For being the 'Ethereum Killer', the Solana network experiences failures far too often, and a number of investors are getting rid of the coin due to unmet expectations.


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Why Ethereum is looking weaker than Bitcoin

Ethereum is more practical than Bitcoin, thanks to its ability to support smart contracts. It was this characteristic that enabled the altcoin to overtake Bitcoin in terms of growth rate with the advent of the smart contract-dependent DeFi and NFT markets in 2020-2021. But Ethereum now appears to be running out of steam.



The early-May collapse of the third-largest stablecoin project, Terra UST, has decimated faith in the entire decentralised finance sector. And with its 50% market share, Ethereum was unable to avoid the impact as its total locked value was slashed by $75 billion in two weeks to reach just $51 billion.



However, DeFi's capitalisation squeeze was not only the result of a loss of faith in the market; the general macroeconomic climate also played a part. Since the beginning of the year, the US Federal Reserve has been tightening its monetary policy, which has led to the US Dollar Index hitting a new nine-year high.

Due to the Fed's policy, institutional investors have been moving money out of high-risk assets into more conservative ones. This attitude was also reflected in investors' cryptocurrency preferences, with Bitcoin being called "digital gold" in recent years. As a consequence, weekly capital inflows into Bitcoin funds stood at $63.4 million in May, while Ethereum funds recorded outflows of $13.2 million.



Reduced interest in DeFi and NFTs has seen transaction commission shrink to a new low. Ethereum has a low throughput capacity, which means that users are forced to increase miner rewards during times of high market activity to ensure that their transactions are processed as quickly as possible.



All of the aforementioned events and developments will inevitably lead to lower investment interest in Ethereum. And while cryptocurrency exchanges are still seeing net capital outflows to cold wallets, Ethereum inflows are at local highs.



But Bitcoin still has one ace in the hole, and that's its in-built deflationary model. Every four years, a halving takes place (new block rewards are reduced by 50%), while the total number of coins is limited to 21 million. In August 2021, Ethereum's burning mechanism was initiated. However, total inflows are still above the number of coins burned, and ETH has no maximum issuance limit.

In a scenario where US inflation gets out of control, Bitcoin will once again appeal to investors as a store of value and inflation hedge. All other things being equal, this will result in its strengthening against Ethereum.


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Not at rock-bottom yet: metrics foreshadow the fall of Bitcoin

Margin trading is gaining momentum, and investment funds are seeing an inflow of investments in Bitcoin. However, faith in the strength of the current support can be deceptive, as a number of indicators predict a decrease to the $20,000-$25,000 zone.



The fall of Bitcoin by 55% from its historical high and the subsequent consolidation around the level of $29,000 gave some hope for an early recovery. This was reflected in the growth of weekly investments in Bitcoin funds to $126 million ($100 million for all cryptocurrencies), and the net inflow in 2022 amounted to $506 million.



Activity can be seen not by both institutional traders and margin traders using leverage. Since mid-May, the largest cumulative position was recorded on Bitfinex: over 90,000 contracts for the purchase of Bitcoin. The previous peak of 55,000 contracts was seen in mid-2021.



Such volumes could not occur without whales. However, this does not mean that the group is an anomaly. In 2021, traders swiftly bought at lows to then subsequently sell at a profit, but in 2020, they failed to do that, instead suffering losses.



Unlike margin traders, long-term holders (LTHs) are not as optimistic. Many of them are already getting rid of coins at a loss. As noted by CryptoQuant, the capitulation of LTH foreshadows a fall, and the next few months will open up the possibility of investment for wait-and-see investors.



However, before the window of opportunity opens, the price will test the next level. According to LookIntoBitcoin, the current "realised price" of Bitcoin is $23,600. The realised price is obtained by dividing the average cost of all Bitcoin (using the purchase price) by the total amount in circulation.

The fall of Bitcoin to the $20,000-$25,000 zone is likely to coincide with the US Federal Reserve's decision regarding its next key interest rate hike. The Fed is anticipated to increase the interest rate by another 0.5% at the regulator's meeting that will be held in the middle of next week. Raising the rate leads to an increase in the cost of borrowing and a decrease in the speed of money supply turnover, which is likely to lead to a strengthening of the American currency against most risky assets.


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NFT market collapsed in May

In the last week of May, average daily NFT sales were $33 million, while that figure exceeded $150 million over the same period in April. Overall, sales rolled back to the level they were at in mid-2021.



The cryptocurrency market's correction didn't overtake the NFT sector, which is considered by many to be an investment opportunity. When new collections from eminent brands are released, participants actively buy tokens with the expectation of a future resale.

This was clearly manifested in early May with the release of the NFT collection from Yuga Labs, responsible for the popular Bored Ape (Bored Ape Yacht Club or BAYC). BAYC ranks sixth in the overall NFT standings, with a turnover of $2 billion, and on 10 May, one of the apes was bought for 250 ETH ($450,000).



In the new collection from Yuga Labs, tokens are land in the Otherside metaverse. The first 55,000 plots were sold out within a few hours.

Due to Ethereum's low throughput in the wake of the hype, buyers were inflating tips for miners to get their transactions processed as soon as possible. As a result, miners earned a record $231 million per day, with commission exceeding $1,000 at its peak.



However, this surge did not lead to significant results for the NFT market, which has contracted by 65% over the past 30 days. Ethereum was also not positively impacted as the subsequent collapse of Terra (LUNA) and the flight of investors from DeFi hit the altcoin's capitalisation.



Search engines have also seen a drop in interest in NFT. The search term "NFT" in Google Trends decreased from a maximum of 100 points in mid-January to its current 22 points. The lower interest in this field leads to Ethereum's usual weakness against Bitcoin since support for smart contracts is the trump card by which the altcoin significantly distinguishes itself.


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Litecoin in disgrace as crypto exchanges delist it

Once one of the top five blockchains, Litecoin has faced new challenges and pressure from South Korea's cryptocurrency exchanges. In mid-May, MimbleWimble (MVEB) was updated, increasing the anonymity of transactions. For crypto exchanges, this caused legal difficulties for financial transactions.



MVEB has multiple goals, and by combining many transactions together, the record becomes similar to a set of random numbers. In this case, the previous history is included in a truncated form, which increases the processing speed. In terms of protection and privacy, MVEB is not a match for Monero or Zcash. However, this move was enough for the largest crypto exchanges in South Korea to announce the end of support for Litecoin.

The use of MVEB makes it difficult for financial operators to carry out KYC (customer identification) and AML (anti-money laundering) measures, as well as a number of other policies required by local law. Upbit, Bithumb, Gopax, Korbit and Coinone have already announced the upcoming delisting and end of support for Litecoin. So, Bithumb will stop supporting transactions with the coin on 22 June and transfers from 22 July.



Crypto regulations in South Korea are some of the strictest in the world. In 2019, under pressure from Korean regulations, crypto exchanges delisted anonymous coins, which led them to drop by an average of 25% over the course of the month.

Litecoin is already trading 85% below its all-time high reached in May 2021. The upcoming delisting will probably lead to a further fall for the cryptocurrency and its exit from the Top 20 rating by market capitalisation.


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Panic in the cryptomarket

The day 13 June was dubbed 'Bloody Monday' due to the panic that struck the cryptocurrency market after another stablecoin lost its peg to the US dollar, the largest crypto exchange by volume froze withdrawals to Bitcoin and bankruptcy threatened a number of projects. However, the real troubles are yet to come.



Bitcoin has already decreased from November highs by 60%, while Ethereum has dropped by 70%. Altcoins traditionally have a harder time dealing with bearish sentiment. This is true in terms of the preferences of both crypto traders and institutional investors. Since the beginning of the year, investments in Ethereum crypto funds have fallen by $387 million, while the inflow to Bitcoin funds is still positive with $451 million.

Due to the panic in the crypto market, a number of projects saw a large outflow of investments, and crypto exchanges experienced increased activity. On 12 June, the Celsius project announced the suspension of withdrawals, and on 13 June, Binance froze Bitcoin withdrawals. These events only added fuel to the fire, which is why the CEL token lost 50% in a day, and Bitcoin fell by 18%. Later, the head of Binance announced that the problem had been taken care of and that transactions had resumed.



The Tron network's USDD stablecoin is an imprint of the infamous UST from the Terra Project. Because it only emerged in early May, USDD has a small capitalisation. However, it has already faced a liquidity crisis and lost its peg to the US dollar. At the KuCoin crypto exchange, USDD's exchange rate fell to $0.91 and has yet to recover, which threatens the market with the loss of another algorithmic stablecoin.



The fall in the crypto market's capitalisation is a stress test that will weed out weak companies and projects focused on instant profits. Public mining companies have already transitioned from accumulating to selling Bitcoin due to a shortage of funds to cover operating costs. In the near future, a series of mergers and acquisitions is expected in this sector.

The largest public hodler, Microstrategy, is in no better of a situation. For three years, the company bought Bitcoin following an increase in value, starting at $12,000. The company's assets currently number 130,000 BTC, while its unrealised loss is $1 billion. The last purchases were made on credit, which will result in Microstrategy needing to increase its bank deposit.

However, the fall of the crypto market was not news for the companies. The US Federal Reserve's pending monetary policy tightening became known at the end of 2021 when Jerome Powell stopped considering inflation a "transitory" problem. Following the regulator's reversal, all risky assets fell, including cryptocurrencies and stock markets.



It's worth remembering that since 2020, the main investment force in the crypto market has been institutional investors (companies with investments of $1 million and more), most of whom are American residents. This also explains why the Fed exerts such a strong influence on the crypto market.

Tomorrow, the Fed will hold another meeting where it will raise its benchmark interest rate yet again. Most experts expect a 0.5% increase, but inflation, which has risen to 8.6%, could encourage the regulator to take bolder steps. In this case, the pressure on Bitcoin will increase.


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Bitcoin outflow from crypto exchanges at a two-year high

The freeze on Bitcoin withdrawals by the largest crypto exchange by trading volume, the crisis among a number of DeFi projects and the crypto market's drop in capitalisation to below $1 trillion led to the largest one-day Bitcoin outflow since March 2020. On 13 June, 123,000 BTC was withdrawn from crypto exchanges.



Blue whales (>10,000 BTC), who actively got rid of coins in May (Zone A), transitioned to accumulating Bitcoin in June (Zone B). Shrimp (<1 BTC) are more active; this group has bought half of the coins mined since November. If they were the prevailing force in the market, Bitcoin wouldn't have traded so low.



However, the market remains dominated by bears, as evidenced by the negative financing rate on futures contracts. The more sellers there are in the market, the further negative the rate becomes. At the same time, buyers receive a premium for playing the long game.



Today's interest rate hike by the US Federal Reserve above the expected 0.5% will delight bears, as it is likely to cause another downward wave among lower-risk assets.



At the same time, Bitcoin is already trading below its realised price, which historically indicates an imminent low. The realised price is the cost of buying all Bitcoin divided by the total number available. The realised price differs from the market price because many coins remain motionless after acquisition. Now, the ratio of the market price to the realised price is 0.92. The last time such a decline was observed was in March 2020.



Billionaire and CEO of Galaxy Investment, Mike Novogratz, said this week that cryptocurrencies are much closer to the bottom than the American stock market. In his opinion, Bitcoin will remain around $20,000, while stocks are likely to fall by another 15%-20%.

He was supported by former Goldman Sachs hedge fund manager Raoul Pal, who told his million followers that Bitcoin would reach its bottom within the next five weeks.


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