Panic in the market or the domino principle.
Foreword
The market has been shaking for several months in a row. I decided to clear the air and tell you what is going on and what situations have affected the current state of affairs.
P.S. This is all for you! By doing a post-analysis of events, you become more prepared for future upheavals. By approaching it in a well-rounded way, you can even make money on it.
Crank your attention span to the max and dive into a fascinating stream of information. You'll look down on the incidents of the crypto world and be able to rethink them.
Macro(economics) - an approach in which world events and their impact on the market are taken as a whole.
- How did the French Revolution affect economic growth? - It is too early to tell.
The S&P 500 is a stock market index made up of 500 large companies whose common stock is traded on the New York Stock Exchange (NYSE) or NASDAQ.
NASDAQ Index - trades more than 3,000 stocks. This exchange specializes in stocks of high-tech companies.
"Massive outflows of money, $11 trillion lost and the worst losing streak for global equities since the 2008 financial crisis." - Bloomberg.
How is this reflected in the cryptocurrency market, what is the connection?
I won't bother with charts, but I'll tell you right away why classic stock market indices affect cryptocurrency. Cryptocurrency and stock market correlation.
The S&P 500 and NASDAQ indices include shares of technology companies, including companies related to crypto. For example, Coinbase Global, Riot Blockchain and others. In other words, their index reflects the state of the whole sector of the economy.
Cryptocurrencies are highly correlated with U.S. technology stocks because they belong to the same class - risky instruments.
They are bought with the expectation of strong price growth, and sold at the slightest signal of impending problems. And inflation and geopolitical uncertainty motivate people to seek protection in safe-haven assets.
In April, the U.S. reported inflation of 8.3% (money depreciates, prices of goods and services rise), the main reason - they printed too much money, have to strengthen the national currency. All this immediately affected the stock and crypto-markets. Bitcoin was the first to react. Based on this we can build a chain of influence: world events/inflation > stock market > bitcoin > altcoin > panic around UST, USDT, USDC
Panic is subject to the Domino Principle. One event affects another, causing a chain reaction, and everything gradually tends to collapse. We will try to illustrate this principle.
After the record collapse of the $LUNA Terra token and its stable $UST coin, increased volatility has been seen across all Stablecoins. Someone, as usual, knew everything ahead of time. Back in April there were many articles that Terra had a weak algorithm and could easily play the death spiral scenario. Here's the gist: "If the price of $LUNA comes under pressure, holders of $UST may be concerned that the $UST peg is under attack and decide to buy back their UST positions. To do this, $UST is burned and $LUNA is minted and sold in the market. This will further exacerbate the fall in the price of $LUNA by encouraging more $UST holders to sell their $UST."
There are many theories about the group behind this pressure. Mostly it comes down to the fact that the pressure is to regulate the crypto. It is not that important. The problem is that the system failed, and if it is possible within the "game rules", then it does not matter what method was used to achieve it, it would have happened sooner or later.
Investigation to be! The SEC is investigating the UST's decoupling from the dollar. And the U.S. is passing a law to regulate Stablecoin by the end of 2022.
The situation with LUNA put the strongest pressure on the market, $UST shook for several days to the point of complete death, the situation heated up, panic attacks seized all sectors of the market, the domino principle was launched.
$LUNA is taken care of, but what about $USDT?
What does Stable mean? $USDT is based on a reserve of fiat dollars and assets. That is, each $USDT is backed by a real U.S. $1. This distinguishes $USDT from algorithmic $UST.
But it's not so simple here either, some funds are taking shorts against $USDT. (News from April 3, you knew something, similar news from March 11).
Some of the securities backed by $USDT are related to the Chinese real estate sector, which is in crisis. If these securities depreciate, then the peg could lose 1:1.
And this concern has been on the radar for quite some time, so Tether is reducing the share of commercial paper, increasing the share of the real dollar.
In February 2021, Tether agreed to provide reports as part of a settlement of allegations of hiding the loss of funds and lying about the status of reserves.
As of March 31, Tether had at least $82.4 billion in assets, as well as $82.2 billion in liabilities associated with the digital tokens it issued.
But this does not invalidate the reasons for the shorts, for the specific sources of the commercial papers have never been revealed. Someone even offers a reward of a million dollars for detailed information.
Paolo Ardoino, Tether's chief technology officer, said the firm "never once refused a redemption request" from any customer trying to sell $USDT. The value of $USDT dropped to 95 cents (someone made good money) on cryptocurrency exchanges on May 12, but Tether said it continued to offer redemptions on its own Web site at $1 all along.
Tether's total market turnover is down more than $8.9 billion since the Terra crash began on May 7. Stablecoin competitors, such as Circle's USD Coin, have risen in value compared with $USDT.
Gas per transaction kept in the range of 400-600 gwei. Which is 5-10 times higher than the standard values.
I'm not trying to intimidate you, on the contrary, the market dictates that you need to be more thorough in understanding the mechanics of the coins we hold. I am simply interpreting and communicating this information to you.
After all, if $USDT falls, the whole market will suffer, because a significant part of projects, even other stabelcoins are completely tied to Tether. If this happens, the consequences are simply impossible to predict. But it is worth understanding that even the possibility of such an outcome is a big dependence and vulnerability of the market. The U.S. doesn't really want companies to be able to create their own dollar, it's not very nice when your main currency can be spun by someone else. And this thought is great for different reasoning.
All of this is sad, but oddly enough, it strengthens the idea of Bitcoin, which simply cannot be influenced from within. I recommend reading this reddit post from 9 years ago.
Of course, it will be very sad, if the U.S. will continue to stamp dollars, and someone will use them to buy back $BTC. ;(
Did you think that was it? Have a comfortable seat. This is just the beginning of my narrative of the Domino Principle.
"Steal in 60 seconds" only in the cryptocurrency world.
Let's not forget that in a time of general panic, fear provokes fear, each event triggers two more, it all grows exponentially, and someone is bound to profit from it, it's the golden law.
It is great wisdom to learn to turn fear to your side in an honest way.
Since 10.05 there have been several major attacks through the largest domain registrar in the world, Godaddy, and the Coinzilla advertising network - attacking web3 projects.
GoDaddy domains were phished by an anonymous hacker.
It is speculated that the hacker may have used the GoDaddy account recovery method to compromise the accounts of several DeFi websites. Many companies were affected, viz:
A day later the work was restored. Losses: $20,000
Hacking attempt was a success.
Got a bigger fish. One of the main DEX on Polygon. The guys recovered: funds were not affected and they helped other projects "defend against this large-scale DeFi attack
14.05 > SpiritSwap, one of the largest DEX on Fantom.
Hackers took over the domain, copied the codebase, and in the process changed the paging parameters.
Fantom $FTM token lost over 30% in the moment.
What is Coinzilla? It's an advertising tool to promote crypto products.
That would be OK, but they partner with huge projects like CoinGecko and Etherscan.
The attackers used a malicious ad script via Coinzilla to attack CoinGecko and Etherscan.
Notably, the scammers tried to trick users with a fake NFT giveaway from Bored Ape Yacht Club.
What is noteworthy is that the above-mentioned events took place in moments of general market panic, and this is hardly a coincidence. Project managers and employees are human beings, too, and are subject to panic. It is likely that these events are related, because panic dulls vigilance, opening the door to opportunities for those who want to profit from it.
So it's always worth remembering: in times of general panic, stay calm and be vigilant. Keep your head cool. In this way, you will protect yourself against irrational decisions that will have even greater consequences. Or maybe in a moment of fear, you'll discover an opportunity. After all, someone was making money on $LUNA arbitrage, and buying back the market at a nice price.
The story about hackers has come to an end, and our article continues.
Carpet from under your feet
We'll look at the question from the other side: general fear and panic? Let's pull out the dirty laundry. It's a good time to add oil to the fire, to get off easier, because in the background of everything else it will not be noticed.
And our guest is........Azuki!
The flor price for Azuki's NFT collection in USD dropped from $83,000 to $16,000 in one week (-80% in the moment, now ±$26,000)! The last time the flor was this low was two weeks after the mint.
What could have happened that a collection in the top 5 could fall like that?
It is worth taking into account that in the general decline of the market, even BAYC has fallen in price by 2 times in dollar terms since the beginning of May.
"I screwed up. I realized my shortcomings in the way I handled my previous projects. To the communities I left, the owners of Azuki, and those who believed in me - I am truly sorry." - Zagabond Founder of Azuki
While the market was on fire, the founder of Azuki released article in which he admitted to launching (rugpull?) and abandoning three not-so-successful projects.
In one project he pretended to be a girl so that his NFTs would buy better. When the information started to get dangerous for him, he was immediately invited to the AMA by Andrew Wang:
"Camon, I tried that, didn't I?" At the time of the session, the panic escalated, a series of sales and confusion, the price rolled from 15 ETH to 11 ETH.
After the AMA everyone was waiting for an official statement and apology from the team, at least some comments, but it didn't happen.
The price reacted and started jumping from 9 to 12 ETH every hour. How did the holders of the collection react?
Those who had been holding NFTs bought for 1-3 ETH for a long time started selling. Yes, they were being repurchased. But they were bought by those who didn't want to be a part of community, but who wanted to earn their interest on the panic and win back the news.
How has this affected the NFT market as a whole?
The community is the main component of an NFT project. It seemed like a point of no return for the Azuki project.
At the time of the events, the collection was top 1 in sales with a significant lead over the competition.
More than 10 days passed, the flor of the collection had settled at $13ETH. It would seem that the price is still significantly lower than before the news.
And now let's imagine what would be if the information had not come directly from the creator and still in favorable market times?
All the attention would have gone to Azuki exclusively, it is quite possible that the collection would not have been able to recover and it would have come to an end.
But now we see that the situation has balanced out, the collection continues to evolve. And the founders have made a good profit on sales commissions.
To live in fear and in one moment to lose everything? Or take a risk, with the hope to keep at least something? The question is philosophical.
Inflation, Do Kwon, $USDT dump, domain and crypto hijacking, Zagabond... What else?
Heh, let's move on. First, a little intro to realize the scale:
Ether is aiming to go to Proof of Stake, and that's the famous ETH 2.0
As this will happen, Ether won't need to be mined to maintain the network, it will need to be staked.
The update aims to make the Ethereum network faster, more efficient and more scalable so it can process more transactions and remove bottlenecks. Read more.
Project Lido provides an opportunity to stack ether for ETH 2.0. And 90% of the liquid $ETH is stacked in Lido. And this is more than $8 billion.
Liquid Stacking means that you get a $stETH token in exchange for your $ETH token, with a 1:1 peg. You can trade, trade and use the token as collateral.
Leverage strategies are based on this - this is when you trade with leverage, pledge your tokens $stETH, in the output you get several times more leveraged assets (depending on your leverage).
And if the price or peg to $ETH falls below a certain value - you will be liquidated, ie, you will lose your deposit and leave with nothing.
Just steaking $ETH does not have such a large percentage - about 4%, so people use the mentioned strategies to increase it. But this carries liquidation risks.
After the launch of ETH2.0, users will be able to exchange 1 $stETH for 1 $ETH.
Peg - peg, for example $USDT 1:1 pegged to the regular dollar. Unpeg - loss of peg.
On May 9, there were problems with $UST and $LUNA, after the loss of UST peg to USD, there was a wave of panic and various peggedcoins began to lose their peg: $USDT, $USDN and others. $stETH was not left out.
Like other pegged tokens, $stETH must maintain a pegged $ETH with deep liquidity. Since there is almost no margin for error, as a 3% loss of peg is enough for liquidations of more than $600 million to occur.
Lido promptly made decisions to maintain the peg to avoid the risk of liquidations.
The decisions were primarily aimed at protecting people who were involved in leverage strategies (since the usual stakers were relatively safe).
$stETH was losing its peg all the way down to 4%.
In other words, the panic caused even tokens, where the peg is hard to dispute, to lose it anyway.
Conclusion
We live in interesting times, the world is changing before our eyes, showing its strengths and revealing its weaknesses.
Since the cryptocurrency market is quite young, every such stage is the most significant.
It is by such episodes that the great analysts will later predict the further development.
How are we, common people, worse? We must learn from our mistakes.
Having analyzed the current situation, there is a lot to note:
The cryptocurrency market, is directly related to the stock market. First of all, the stock market affects Bitcoin.
Stablecoins, not so much. If they are not backed by real dollars, and even here you can argue.
Don't give in to panic, otherwise volatility is inevitable and sometimes you can even make money on it.
Be vigilant, remembering that panic grips everyone. In times like these, risk is everywhere, so analyze what you do and be careful.
A crisis is a hard time, but on the other hand it is a time of opportunity.
Cryptocurrency has already lived through difficult times. The market cannot go up all the time, the current situation is quite natural. But it is precisely in such times that the most significant projects of the sphere were born and developed in the market.
The collective panic may greatly shake the market, any token, and even shake $USDT. Do not despair, we are in the right place.
I'm not trying to draw conclusions, the purpose of this article is to deliver information and give you an opportunity to look at it from the other side.