Bitcoin Recovers
As far as comebacks go, it wasn’t much. However, Bitcoin will take whatever it can get at this point.
So will other cryptos affected last week by the toxic combination of geopolitical upheaval, rising interest rates, recessionary fears, the collapse of the terraUSD (UST) stablecoin and the LUNA token that backs it.
Over the past 24 hours, Bitcoin’s value has risen by nearly 3.5% to $31,000, a gain of about 16% from the low of $26,600 it hit on Friday. “Bitcoin did indeed face downward pressure that saw it lose the $30K support, but it did not fall below the $25K level,” Joe DiPasquale, CEO of crypto fund manager BitBull Capital said.
Ether, the second-largest cryptocurrency by market cap, was recently up similarly and trading around $2,100 after falling below $1,800 earlier in the week for the first time in two months. Most major altcoins finished the day in the green, regaining some of the ground lost last week as the crypto market cap fell by $300 billion. SOL gained more than 10% at one point, but its $55 price was down from more than $70 at the start of the week.
ADA, AVAX, and AXS saw increases ranging from 9% to 11%. BCH was one of the few losers on Sunday.
On Friday, equity markets finally had some good news after six straight days of falls in the crypto market. The tech-focused Nasdaq closed up 3.8%, while the S&P 500 and Dow Jones Industrial Average increased by 2.3% and 1.4%, respectively. The week’s economic bad news is unlikely to shake investors from their risk-averse positions of recent months.
On Wednesday, the US Commerce Department announced that consumer prices rose 8.3% in April, slightly better than the previous month but still indicating that inflationary pressures on a range of products and services will persist. Mortgage rates have risen above 5.3%, making it more difficult for would-be homeowners to finance their purchases in an already volatile housing market. Investors are concerned that the United States’ central bank’s hawkishness is insufficient to contain rising prices without plunging the economy into recession.
Susannah Streeter, Senior Investment and Markets Analyst at Hargreaves Lansdown, highlighted this in an email on Friday: “investor worries over inflation, supply concerns and the UST fall, which sent LUNA tumbling to a fraction of a cent. For now the crypto wild west is taking a breather after reeling from the crash brought on by the collapse of a so-called stablecoin.” Streeter also added: “This latest plunge in the wheel of fortune demonstrates that speculating in cryptocurrencies is extremely high risk and unsuitable for investors who don’t have money they can afford to lose.”
BitBull’s DiPasquale said that Bitcoin is still on track for “a near-term bounce,” but a proper reversal needs more buying activity. He described last week’s low as a “decent buying opportunity for long-term exposure” but cautioned that “the coming month may bring additional volatility as more concrete steps by the FED to fight inflation come to the fore.”
Markets
S&P 500: 4,023 +2.3%
DJIA: 32,196 +1.4%
Nasdaq: 11,805 +3.8%
Gold: $1,811 -0.5%
Insights
Singapore will closely monitor crypto firms that are registered locally.
LUNA and UST have been de-listed from most exchanges after the Terra blockchain was halted for nine hours, resumed and then halted again as the market seemed to reject a recovery plan.
Many people are wondering how token holders will be compensated. This is where things become complicated.
Terraform Labs, the Singapore-registered company behind the Terra protocol doesn’t have a permanent office. Its Singapore address is indeed a registration agent that houses hundreds of Singaporean companies. Its offices are in rented co-working spaces worldwide, and like many Web 3 startups, it has no formal headquarters.
The only assets the company has are from the Luna Foundation Guard. This non-profit organisation, also based in Singapore and led by Do Kwon, is in charge of the wallets that were supposed to support the UST peg during extreme volatility. Most of these wallets are now empty, with the only valuable thing remaining being the approximately $69 million in avalanche token (AVAX).
Singapore’s regulators are aware of a trend of cryptocurrency companies using a Singaporean entity to conduct business abroad despite having no material ties to the country. In April, its Parliament passed a bill into law that included provisions requiring domestically registered crypto companies that do business abroad to be licenced, primarily for anti-money laundering purposes, but leaving the door open for future expansion.
Terra’s LUNA token had a market capitalisation of $33 billion at the start of the year. Its UST stablecoin had a market cap of $10 billion. Now, both have a virtual value of $0.
What assets might be seized if token holders file a lawsuit against the companies behind the protocol? What is the Singapore government’s jurisdiction over Do Kwon and co-founder Daniel Shin? Both provide addresses in Singapore on company filings with local authorities, but it’s unclear if they live there full-time, as Kwon also has a residence in South Korea.
In their lawsuit against the Securities and Exchange Commission (SEC), Terraform Labs and Do Kwon claimed that American regulators do not have jurisdiction over Kwon, a Korean living in Singapore. They argued that because they have no ties to the United States, they cannot be targeted by regulators. However, they may have to deal with Singapore’s legal system, and while the country has a more favourable securities framework than the United States, its courts are known to be strict.
If the Singaporean government believes that the nation’s reputation is at risk as a result of a registered company with few material ties that blew up tens of billions of dollars, it will go after them hard and may begin the process of closing the door entirely on crypto firms that use a Singaporean shell but do business abroad.
If that happens, will Terraform and Kwon take the “no jurisdiction” route?
Technician’s take
Bitcoin weekly price chart shows support/resistance, with RSI at the bottom. (Damanick Dantes/CoinDesk, TradingView)
Bitcoin (BTC) rose to $30,000 on Friday as buyers reacted to oversold conditions. However, any upside appears to be limited, and the cryptocurrency may face resistance at $33,000 and $35,000.
Momentum signals remain negative on the daily, weekly, and monthly charts, indicating a period of low or negative returns. Furthermore, according to TradingView’s Coinbase (COIN) price data dating back to 2014, BTC is on track for its first-ever consecutive seven-week decline. This is also an indication of downward price momentum.
BTC is approaching lower support near its 200-week moving average, currently at $21,800. Immediate support is between $27,000 and $30,000, which could help to stabilise price action in the coming days.
Short-term countertrend signals appeared on the charts on Thursday, resulting in a brief price bounce.
On the weekly chart, the relative strength index (RSI) is at its most oversold level since March 2020, but strong resistance and negative momentum signal limited upside over the next few months.
