Week of May 10, 2022

Terra Luna Sees Major Price Correction and Depegging

BTC slides below $30,000, Down More Than 50% Since All-Time-High. Major Volatility Puts Investors on the Lookout for Recession Signs

💬 Market Commentary



Bitcoin has fallen ~50-55% from its all-time-high, breaking below $30,000 yesterday and trading at around $32,000 at the time of writing. Beginning the week, the top cryptocurrency by market value lost nearly 10% in value over a 24-hour period and dragged the overall market down with it.

Investors have become more concerned with inflation, the Fed’s aggressive monetary policy and fears about a possible economic slowdown have shook Wall Street, and made bond yields skyrocket. This has accelerated the decline in equities and crypto market.

The Coinbase premium index, an indicator indicating the premium between Coinbase and Binance (BTC/USD/USDT) has turned negative and reached a 12-month low level as per Cryptoquant data. A negative premium is a sign that a higher percentage of institutional investors are placing orders compared to retail investors. Investors should keep a close eye on the Coinbase premium index as a reversal in it can signal stronger institutional demand, along with price momentum.

As the market decline on Monday extended losses for BTC and the overall crypto market, the Bitcoin relative strength index (RSI) reached a low of 25 points, falling in oversold range. Market investors should expect more volatility for the rest of the week but should continue to monitor RSI to decide timing for new purchases.

The Fear and Greed Index from alternative.me shows that investor sentiment has been battered by the fast decline in markets. Investors are in extreme fear and historically looking at this index, we notice that investors tend to be on the sidelines for a few weeks before reentering the market.

Data by Glassnode gives investors a historical snapshot showing price drawdown from all-time-high (ATH) and the timeframe it took in general to see a positive price correction in the crypto market. On average, it took 2-3 weeks for prices to recover from ATH after large price drawdowns. The concentration of price dradowns stands between 30% - 50% based on Glassnode historical data. The last major price drawdown for Bitcoin was seen on July 2021 with ~55% where price of the top cryptocurrency experienced a price correction from mid $32k to reach $39k in four week and locked a ~35% price increase.

As we discussed in last week’s issue, a key level to watch is $30,700 - which is the average purchase price for Microstrategy’s bitcoin holdings. As we discussed, it was likely that institutions would be looking to add to their portfolio at “Saylor” prices. We saw that level get tested yesterday, and El Salvador promptly announced that it had purchased 500 more Bitcoin at an average price of $30,774.

After breaching below it, the Saylor Support line at $30,700 seems to be holding up for the time being.

The decline in the crypto market has also contributed to several crypto-linked equities declining. Coinbase fell ~16% on Monday and is down more than 64% in 2022. Robinhood, another trading platform for cryptocurrencies has fallen more than 45% this year. Crypto miners have taken a beating as well. Hive Blockchain (HVBTF), Marathon Digital Holdings (MARA) and Riot Blockchain (RIOT) are all down between 50% and 60% this year.

The large pullback in these and other momentum technology equities is yet another sign of the rapid shift in the market's mood for 2022.

While the conversation is squarely focused on the potential of a recession and “how low can asset prices go?” - some long-term investors with conviction are making big moves.

While he is not a fan of bitcoin, Mr. Buffett is known as the world’s best investor for a reason - he patiently waits for opportunities and does not “chase markets”. For what it’s worth, Mr. Buffet has deployed over $51 Billion in capital over the last quarter.

To wrap up this section, we wanted to remind our readers that there is more to bitcoin than just price - for instance, there are now over 42 million bitcoin addresses with non-zero balances, and the charts speak for themselves.

S&P 500


Monday, May 9th was a rough start of the week for the S&P 500. The popular index fell below the 3,980 level for the first time in over 12 months.
The U.S. 10-year Treasury bond has surpassed the 3.00% area, having more than doubled this year. Long-dated bond yields have reached their highest level since November 2018. The increase in yields have helped lift the value of the dollar. The U.S. Dollar Index now trades at its highest in two decades. A strong dollar is bad news for the crypto market. A weak dollar is a bullish sign for digital currencies. The continued increase in rates and dollar strength could lead to additional selling pressures for Bitcoin and other cryptocurrencies.

Jerome Powell and the Federal Reserve have started to pull back on monthly bond purchases and other stimulus benefits. The combination of higher rates, government squeezing liquidity from the market and a potential recession as inflation surges has taken a toll across markets. S&P 500 futures rose 0.3% after the benchmark closed the day below 4,000 for the first time since 1Q21. The Central Bank of England’s Volatility Index (VIX), an indicator of market fear for investors on Wall Street moved above 34, well above its longer-run average of around 20.

Additional concerns have risen over how corporate profits will perform amid persistent macroeconomic disruptions, based on the resurgence of COVID in Asia, the ongoing war in Ukraine and global supply chain issues affecting production and international deliveries. As of the week of May 4th, the percentage of S&P 500 companies beating earnings per share estimates was above the five-year average, with 87% of all S&P 500 companies having reported 1Q22 results. Corporate earnings for the first quarter of 2022 were not as stellar as the previous quarters and that can be reflected as stimulus money is not flowing into the economy as it was during COVID. Traders and other market participants will keep a close watch on the Consumer Price Index (CPI) released during the middle of this week. The index will provide a snapshot on the state of inflation in the United States. The CPI numbers will be expected to provide investors with some clues on how aggressively the Fed could act on their next meeting as they attempt to mitigate rising prices due to inflation.

Additional market indicators point to a potential recession. At the end of March, the bond market flashed signs for inverted curves. Inverted curves happen when the risk of holding shorter-dated bonds is higher than holding long-dated bonds. Inverted yield curves have preceded recessions since 1955, though there have been times when it has taken up to two years for economic contractions to occur, for the exception in the 1960’s when an inverted curve did not follow an economic contraction.


Gold prices extended their price decline on Monday as the U.S. Dollar Index rose to its highest level in the last two decades and U.S. Treasuries continued to rally. The U.S. dollar has risen as there are higher expectations for more aggressive Fed monetary policy. A stronger dollar has taken a toll on gold, as the precious metal is not an interest bearing market product. A stronger dollar has made the gold bullion more expensive for international buyers.

The gold bullion has declined since mid-April as the Federal Reserve and other central banks tighten policy to fight rising consumer prices. The precious metal has dropped below the $1,850/oz and could face further price decline amid the high market volatility and stronger dollar. Additionally, ETF gold-exposed investors have been withdrawing capital from these strategies and allocating into higher-yielding strategies.


The Luna Guard Foundation (LFG) liquidated nearly $1.3 billion (42,530 Bitcoin) from its treasury wallet as the crypto market tanked. Increase in treasury rates, macroeconomic forces and a strengthening U.S. dollar contributed in part to the decline in the overall crypto market. The LFG sell off added additional selling pressure and contributed to additional fear on investors.

LFG had purchased BTC and AVAX for its reserve fund to help maintain the UST peg (at a fixed exchange rate). Capital outflows from Terra could leave the protocol with limited room to maintain a peg. UST dropped below its crucial $1 level on Monday, trading as low as $0.91 on Binance. UST is an algorithmic stablecoin where the price fluctuates as it lacks any asset backing, relying on trading and treasury management to maintain its underlying value. LFG created a $10 billion treasury fund to be able to support the UST peg, yet as the crypto market downward spiral, the foundation had to sell its treasury Bitcoin holdings to help maintain price stability for the Terra ecosystem.


Despite the major price drawdowns in Bitcoin, the network difficulty remains at an all-time-high. If price pressure continues to affect revenues, there is a possibility that miners who contribute hashrate to the Bitcoin network and make it more secure could migrate to higher profitability networks. Foundry USA (20.35% global hash rate with 92 block mined), AntPool (14.16% global hashrate with 64 blocks mined) and Binance Pool (12.83% global hashrate with 58 blocks mined) continue to dominate the Bitcoin mining market.

The network profitability declined ~10% on Monday and is in line with historical declines. Despite the decline, supply, entities addresses that are still in profit stand at 60% - 62%. Over a three year period, the network profitability decline on May 9th is the fourth most severe. Based on Tradingview’s “Bitcoin Production Cost”, has made it unprofitable for some miners to mine Bitcoin. The new ATH mining difficulty and rise in electricity and commodity costs has made the average costs of mining a Bitcoin elevated.

What's Ahead

With a rough start to the week, investors will continue to pay attention to volatility in equity markets which has been moving in tandem with the crypto market. Some major economic indicators that will be released this week include: the consumer price index, the University of Michigan consumer sentiment index and the University of Michigan 5-year inflation expectations. These indicators will give market participants more detailed color as to how the Federal Reserve might continue to implement monetary policy going forward. Market analysts are expecting a monthly increase on CPI figures of 0.3%, or 8.2% annual equivalent. This would represent a slowdown from the month of March, but these figures remain elevated. Additionally, the Federal budget will be released on Wednesday and will provide an additional metric for investors to assess the course of action for Federal intervention in the overall economy. 


8:30 AM EST - Consumer price index, Core CPI and Core CPI (year-over-year) 

2:00 PM EST - Federal Budget  


8:30 AM EST - Initial jobless claims, continuing jobless claims and producer price index (final demand)


8.30 AM EST - Import price index

10:00 AM EST - University of Michigan consumer sentiment index (preliminary) and University of Michigan 5-year inflation expectations 

3:00 PM EST - Consumer credit 

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.