What Happened To Crypto Markets?

The late downfall in the value of crypto assets has led many of them to the lowest range of prices in 2022. What resulted in this plummeting?

Hello fellow crypto enthusiasts! I was inactive during the last week mainly because of university studies and demotivation to generate content. This week has been a catastrophe for those who had invested in the Terra blockchain. I thankfully had no assets there and I only purchased some LUNA when the price was around $1,50 and the UST had shown temporary signs of recovery. It was a bad choice, but I still feel glad I didn't lose anything special.

In today's article, we are going to learn about Bitcoin's recent volatility and its possible support zones, dive deeper into the collapse of the Terra ecosystem, and make estimations on the future of crypto.

How is Bitcoin performing?

Bitcoin is showing bearish trends owing to the influence of the Terra collapse and the late strength of the USD. If we look at the chart below, we can understand that the dollar has gained momentum and the Federal Reserve's plans to raise interest rates are likely contributing to the same direction. In fact, the USD is shown to have reached an RSI above 70 for the first time since the 2014-2016 run.


Delphi Digital chart about the DXY Index, published on 12 May 2022.

According to MarketWatch as of 13 May at 4:59 pm EDT, the latest rate is 104.47 with a 0.37 decline.

The recent strength of the USD adds pressure to the BTC/USD pair and with the correlation between the DXY and the BTC/USD index remaining strong, the chances for a gradual bouncing are waning.


Delphi Digital chart about the correlation between the BTC/USD and the DXY Index, published on 12 May 2022.

Of course, this downtrend isn't the only one in the world of markets, as investors in NASDAQ 100 have been continuously withdrawing money from stocks leading to a drawdown similar to the one during the beginning of 2020.


Delphi Digital chart about the NASDAQ 100 drawdown, published on 12 May 2022.

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What happened to LUNA and UST supply?

Remember when I wrote last week about how the Terra blockchain works? Well, let's have a quick recap.

We should firstly have a deeper understanding of how the Terra ecosystem works. According to the documentation, the main feature of Terra is the stablecoins (notably UST) and their goal is to maintain the peg and a balanced supply and demand. Additionally, LUNA functions as collateral for UST's peg, because when UST increases in value users can trade LUNA, which is burned, to mint UST and vice versa.

We continue with the first signs of the upcoming collapse.

While during the last months LUNA has been constantly burnt to maintain this balance, on May 8 UST supply dropped by 28 million while LUNA supply increased by 436,000. The increase in supply might have driven LUNA's price to lower levels in parallel with the reasons mentioned above.

With the UST losing the peg, its supply declined a lot and this led to an increase in LUNA supply and a continuous devaluation. According to CoinMarketCap, the LUNA supply has already surpassed 6 trillion.

Meanwhile, Do Kwon is still trying to calm down the rage of holders who are attacking him for the project's complete downturn.

The future of Terra is bound to be bleak as its tokens are delisted by some prominent exchanges.

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Can crypto markets turn bullish again?

There is no safe answer to this question, as analysts are still struggling to find out what will happen with the Terra system and which support zones to base upon.

BTC has been trading in the $28,000 to $30,000 zone according to Delphi Capital and the next zones in the event of a further decline could be from $19,000 to $24,000.

Pantera Capital CEO Dan Morehead advised people to buy crypto as the price is below the common trend.

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Crypto investments are volatile, which means they can be more profitable than others but more precarious as well. I sincerely hope that you didn't lose a lot of money and most importantly that you didn't panic sell. It's really important to note the importance of investing in more than one asset and having many income sources.

That's all I had for today. I hope you enjoyed the article and appreciated the effort. Remember that all of us are in a similar situation and it's important to remain patient. As for LUNA holders, I hope you get repaid because what happened was unjust and the vulnerabilities of the mechanism were unique. The lack of an effective backup so far shows that the collapse could likely be an inside job.

Crypto means freedom and responsibility. Invest wisely!

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Crypto Evangelist, Altcoin Observer, Optimistic Enthusiast Freedom is for the brave! Just HODL!

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