Week of May 17, 2022

The Collapse of UST and Ledn’s Approach to Stablecoins

Investors Buy Bitcoin During Market Weakness, Record YTD inflows for Bitcoin. Recession Fears Can Drag Markets Down and Crypto Correlation Strengthens.

💬 Market Commentary



Despite the crypto market meltdown in the last week, investors bought Bitcoin during the market weakness. Bitcoin inflows represented nearly $300M, having surpassed the closest YTD inflows seen in April with $193M and ~$260M, respectively. Capital inflows in Bitcoin demonstrate the investor appetite for the digital asset even in times of turmoil. During the last week of high market volatility, Bitcoin saw a 4.9% price decrease, having ranged from $32.3k to a low of $25.3K, as the market experienced major volatility brought on by the crisis with UST. 

Daily transaction volumes spiked in May from ~600k daily transferred value to over 840k. The last time the Bitcoin network saw similar daily transferred value volumes this high was in 2011, just one year after its creation. Despite the major uptake in daily transferred value on the Bitcoin network, transaction fees remain low, near the $2 mean price which has come down drastically from the ~$55 seen a year ago (representing 27.5x decrease in network fees over the last 12-months). 

Bitcoin correlation to traditional equity markets continues to strengthen but the digital asset has veered away from the correlation of the dollar index “DXY” and gold by an average 3.2x. As the traditional equities market continues to be volatile, the crypto market has been more closely correlated to the equity markets with a correlation near 0.80 (a correlation of 1 represents identical movements, a 1:1 basis). The crypto markets have seen a drastic detour from Gold and DXY, with correlation swinging to opposite ends. In part, investors have weighed in the high inflation, supply chain bottlenecks, the recent war in Ukraine and the Fed’s aggressive monetary policy agenda as contributing factors to steer away from high growth equities and digital assets and seek safe-haven assets such as gold and the dollar-index which has reached a two decade high point. 

A strengthening dollar, an aggressive Fed and turmoil in macroeconomic factors have investors on edge and reassessing investment ideas. 

S&P 500

When COVID shook the international equity markets, markets saw substantial losses for a few consecutive weeks. As governments around the world provided stimulus relief, markets experienced one of the greatest rallies in history. Now, soaring inflation attributed to higher energy prices and the war in Ukraine has prompted the Fed to increase interest rates for the first time in many years. The result, stock prices have seen major corrections. Currently, the S&P 500 is down nearly 17% this year and has recorded six straight weeks of losses, something not seen since 2011. Investors are on edge as the market could see further selling pressure given rampant inflation, macroeconomic headwinds and the Fed aggressive action plan to tame inflation. Additionally, economic indicators have flashed signs of a potential recession and Wall Street economists have voiced similar concerns over a slowdown in the global economy. 

Goldman Sachs has revised its S&P 500 year-end estimates for the third time this year given the higher than anticipated rate hikes, economic indicators, as well as COVID and supply-chain issues affecting production levels globally. Equity strategists at the bank have placed a 4,300 year-end prediction for the S&P 500. In the event of a recession, the S&P 500 could plunge to 3,600 and represent an 11% decline from current market levels. Goldman Sachs’ economists have placed a 35% probability of a recession in the next two years. Assuming that the economy is able to avoid a recession, but real nominal rates continue to increase, the S&P 500 could be dragged to the 3,800 territory, yet only represent a 5% decline from current market levels. Should the Fed deem necessary to increase rates by higher anticipated economists’ estimates and real nominal interest rates rise to 100bps (1.00%), Goldman Sachs’ macroeconomic model calculates that higher interest rates will help offset the lower yield gap from the baseline scenario. 


The looming interest rate hikes from the Fed contributed to a small decline in price pushing the bullion to a more than a three-month low price. Gold started the week on green territory on the later part of trading day on Monday as the U.S. Treasury yields retreated. The U.S. dollar dipped slightly in the trading session but maintained a two-decade peak, as a result, it made purchasing gold more expensive for overseas buyers. Despite being considered a hedge against the current soaring inflation, higher interest rates have tamed investors' appetite for gold, which pays no interest compared to “safe-haven” U.S. Treasuries.


The aftermath of the UST/LUNA/ANC saga has left behind over $45B in losses across the crypto market. The Luna Foundation Guard “LFG” was created as a foreign exchange vehicle to help diversify the ecosystem’s treasury with assets that were not correlated to the Luna ecosystem. The Foundation began purchasing Bitcoin, Avalanche and had plans to buy other assets that it could then use to help maintain the UST-LUNA peg. 


Once more, the Bitcoin network has demonstrated community support to strengthen the network security and brush-off any concerns of potential planned attacks on the blockchain, having established a new mining difficulty all-time-high “ATH” of 31.251T, having exceeded the 30T mark since its creation in 2010. The Bitcoin network has demonstrated a 10-month continued increase in the network mining difficulty which demonstrates the support from the crypto community to help secure the network in exchange for rewards and make it hack-prone. 

A higher mining difficulty safeguards the Bitcoin network against potential attacks such as double-spending, where hackers try to reverse confirmed Bitcoin network transactions. A greater mining difficulty demands higher computational power from Bitcoin miners to confirm network transactions. 

The result of higher computational power demand on the Bitcoin network is that it makes it almost impossible for hackers to represent over 50% of the hashrate to carry-on an attack on the network.

Currently, Foundry U.S.A. controls 19.9% of the global hash rate, having mined 85 blocks over the past week. The 2nd Bitcoin mining pool is led by AntPool with 16.6% of the global hashrate with 69 blocks mined in the last week. 

Despite the current market downturn and the crypto investor community concerns regarding the potential targeted attacks on the Bitcoin network during the current “bear market”, the Bitcoin network continues to garnish unparalleled support from the crypto community and continues to stand as the most resilient blockchain network in the whole crypto industry. The total TH/s reached a height of 219.4M on May 15, bouncing back from a 12-month low in July 2021 of approximately ~85M TH/s.

What's Ahead

The beginning of the week was packed with the New York Fed President John Williams speaking on Monday. Tuesday was the busiest day of the week ahead as St. Louis Fed President James Bullard took to the newsroom to speak on the economy. Retails sales and the industrial production index was released. Philadelphia Fed President Patrick Harker spoke on health care. Fed Chair Jerome Powell interviewed with the Wall Street Journal on the state of the economy and growth. Cleveland Fed President Loretta Mester spoke at a conference about inflation in the United States and Chicago Fed President Charles Evans spoke to Money Marketeers. The rest of the week will be lighter with building permits and housing starts data being released. Philadelphia Fed President Patrick Harker will speak on the economic outlooks. Important data on initial jobless claims and continuing jobless claims will be released on Thursday, the same day the Philadelphia Fed manufacturing index data is set to be released. Friday will be a non-event day to finish off the week in a “smooth” manner. 

We hope you enjoyed reading and as always, we wrap up with a summary of the upcoming economic data and earnings reports for the week:


8:30 AM EST - Building permits (SAAR) and housing starts (SAAR) 

4:00 PM EST - Philadelphia Fed President Patrick Harker speaks on the outlooks 


8:30 AM EST - Initial jobless claims, continuing jobless claims and Philadelphia Fed manufacturing index

10:00 AM EST - Existing homes sales (SAAR) and leading economic indicators

It's a big week coming up, and as always, we'll keep you posted on any relevant news throughout the week right here and from our Twitter account.


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About the author

Mauricio Di Bartolomeo

Mauricio is the co-founder and Chief Strategy Officer of Ledn.io. He grew up in Venezuela where he and his family learned about Bitcoin. Now based in Canada, Mauricio holds HBA and MBA degrees from the Richard Ivey School of Business in London, Ontario in Canada.