This week:
In this week’s newsletter we discuss Bitcoin/Dollar reaching its weekly range low.
We also discuss the impressive relative strength in Ethereum despite market-wide
weakness.
To conclude, we comment on Monday’s UST depegging debacle.
https://coinmarketcap.com/coins/views/all/
Table of Contents
1. Bitcoin Reaches Range Extremity
2. Ethereum Shows Relative Strength
3. Terrible Day for Terra Bulls
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1. Bitcoin Reaches Range Extremity
https://www.tradingview.com/x/fsVYF9mm/
https://www.tradingview.com/x/sdAwexWg/
Bitcoin/Dollar is right at the bottom of its macro range ($30000-$60000).
The market poked below the $30000 round number and recovered shortly
afterwards.
Higher time frame charts still need rescuing.
Specifically, the monthly support is in a dire state at the moment, with
Bitcoin/Dollar trading significantly below the $35000-$37000 support.
As before, if you’re conservative, you can simply wait for a monthly close back above
$35000-$37000. That would be good evidence that this present price action is
merely the wick portion of the candle.
For more adventurous participants, calling the ‘bluff’ on this monthly candle by
buying weekly support ($32000-$34000) is also tenable. Even a bearish retest could
see prices 15%-20% higher, and we rarely frown upon participants doing business at
extremes.
You’re either nailing the bottom (and making money even if all the move results in is
a bearish retest) or you find out you’re wrong pretty quickly.
Duck is waiting to get back from holiday to bid (surely an earlier flight is warranted if
he’s that bullish), while Cred is a washed up bottom-missing boomer who is going to
cope and wait for more strength, as outlined in yesterday’s video.
As we’ll discuss later, a bunch of stuff broke yesterday alongside some urgent
selling, and the market didn’t implode.
That’s usually a decent formula for some sort of relief. A weekly close above
$32000-$34000 would be a good sign.
2. Ethereum Shows Relative
Strength
https://www.tradingview.com/x/jyNl1p7O/
https://www.tradingview.com/x/YnzJ4U9L/
Ethereum performed well during yesterday’s weakness.
The BTC pair didn’t flinch and is creeping back towards its range high at ₿0.077.
The USD pair is still moving between levels. Much to Cred’s dismay, the weekly low
near $2500 is once again relevant.
If the $2500 breakdown is soaked up and price closes above that low on a weekly
basis, a move back towards the all-important cluster around $3000 becomes
plausible.
The ubiquitous theme for the majors is that there was a lot of urgent selling into key
levels and/or through important boundaries.
Urgent selling that isn’t closely followed by continuation usually leads to reversal (or
at least reversion).
Low $30000s for Bitcoin/Dollar and mid-$2000s for Ethereum/Dollar are key
inflection points that must be overcome to make the bounce case extra clear.
3. Terrible Day for Terra Bulls
https://www.tradingview.com/x/b6FJ2mmj/
LUNA nuked, UST deviated significantly from its $1 peg, large outflows from Anchor
Protocol are continuing, and there’s some sort of communications blackout from Do
Kwon, LFG, Terra, and Jump Capital.
We were all glued to our screens watching UST/USDT on Binance.
Terra Dollars traded as low as $0.6065 relative to Tether Dollars before recovering to
$0.93 at the time of writing.
Terra itself was down almost 50% on the day.
The basic premise is that you can generally redeem $1 worth of LUNA for $1 worth of
UST e.g. if LUNA is trading at $100 you can redeem 1 LUNA for $100 UST. If UST is
above $1, the protocol incentivizes users to burn LUNA and mint UST. The reverse is
also true i.e. if UST is below $1, the protocol incentivizes users to burn UST and mint
LUNA.
The incentive for holding UST (‘pegged’ to $1) over LUNA was the 20% yield
provided by the Anchor Protocol.
As such, when the peg is pressured, participants sell their UST (and mint LUNA in
doing so) and then sell the LUNA to get their $.
In summary, a reflexive feedback loop was created (alongside the usual dollop of
margin calls) whereby an exodus from UST in fear of its $1 peg not recovering led to
large exits at the expense of the LUNA price.
Currently, rumours are swirling of another massive fund raise/bailout (sigh) to
presumably replete LFG’s reserves and stabilise the $1 peg.
More information will likely become known during the course of this week. A post-
mortem from the Terra side, the status of their reserves, further fund raises, and so
on.
If the peg is pressured once again, it’s likely that we get a similar spillover to other
crypto assets as participants speculate on what other assets will be sold to defend the
peg.
Calmer waters and less urgency would be facilitative of a bounce.
