Can crypto catch a break in this economy?

Total mcap: $0.912 tn | BTC dom: 40.1% | Crypto FGI: 20

Last week, according to numerous analysts, crypto was poised for growth, until it wasn’t. The positive momentum seen across crypto and stock markets in the beginning of last week faltered midway through, with risk-on assets giving most of the gains back by the week’s end.

While it was another relatively uneventful week in terms of price action, Bitcoin (BTC) and Ether (ETH) saw major price moves on Oct. 4 and 5, respectively. The top coins by market cap tested the upper boundary of the range where they were trading since mid-September, with BTC trading up to \(20,500 and ETH climbing as high as \)1,400 level at the peak.

Later last week, the two largest cryptos reverted, resulting in momentary breakdowns to lows of \(18,920 for BTC and \)1,260 for ETH. Bitcoin and Ether have since rebounded, however, to see consolidation in the tight range between \(19,000-\)20,500 for BTC, while Ether struggles to regain the $1,300 mark so far.

This week, particularly today, the price action has been very volatile with CPI numbers coming in higher than expected and the market reacting to the possibility that a Fed pivot may not be near.

However, BTC and ETH have both bounced since testing lows around \(18,000 and \)1,200, respectively.

No signs of a pivot

Volatility in the crypto market remained uncharacteristically low recently, with realized volatility in index of top 100 tokens down to levels last seen in 2020. 

Volatility was low even compared to traditional financial markets, resulting in market exhaustion. For now, both crypto and equities follow similar trends as macroeconomic forces retain the driver’s seat.

As we pointed out in the previous issue of Coin360 Weekly: ‘Now that the crypto calendar is largely clear, it leaves BTC and the broader crypto market vulnerable to macro forces’. Namely, Fed’s policy, a major conflict between Russia and Ukraine and a looming world energy crisis are likely to rule market conditions, at least until the end of 2022.

The energy crisis, if it comes, is now likely to be worse after OPEC+ voted to cut oil production by 2 million barrels per day. The oil supply reduction - read higher oil prices - is likely to sabotage the U.S. Fed’s attempts to tame inflation, probably pushing the Fed even further on its hawkish path.

Another macro factor at play earlier was the release of the September unemployment statistics for the U.S. The unemployment rate came significantly lower than expected, suggesting that the U.S. economy isn’t slowing nearly as much as the Fed could think it would.

The current 3.5% unemployment rate, a number 50 basis points higher than the target rate of 4%, provides the Fed the leeway it needs to continue hiking the interest rate aggressively, simultaneously slowing down the strong labor market and pushing up on unemployment. 

Similarly, today’s CPI numbers coming in higher than expected once again alarmed markets.

As we’ve all learned recently, a rising interest rate has the power to crash risk-on assets. This time, the signal was once again clear for the market, triggering a sell-off in both crypto and stocks.

Last week, the Fed’s Evans commented on the policymakers’ response to one of the most turbulent macro settings in decades. According to Evans, the Fed is now looking for 125 bps rate hikes over the next two meetings. Be it a 75 bps hike in October and a 50 bps hike in November, or vice versa, the result by the end of 2022 is going to be the same.

While it’s already clear that the Fed is not going to give up its rate hike streak anytime soon, the post-CPI print price action and bounce may give confidence to the bulls.

Will gainers be able to sustain momentum?

HT: Last week, the native coin of the fourth-largest centralized crypto exchange Huobi came in as the best-performing cryptocurrency (among those with market capitalizations above $150 million) with weekly gains of 32%. 

While the price of HT saw almost no reaction to the news that Huobi’s co-founder was selling a controlling stake in the company, HT surprisingly jumped by around 18% after Justin Sun said he will take an advisory role in the exchange.

MKR: MakerDAO’s MKR protocol governance token was enjoying a rally for the third straight week, finishing the seven days with a 22% price increase. MKR’s strong performance with a surge of 28.9% over the past month helped the token outperform both Bitcoin, which remains relatively stable, and Ether, which slid 28% since Sept. 11.

The recent gains come on the heels of the protocol’s move to overhaul its market strategy and tokenomics of its DAI stablecoin. This week, MakerDAO revealed its decision to reallocate $500 million from its treasury into U.S. treasuries and corporate bonds. MakerDAO appears to be looking for ways to enhance the productivity of the largest asset on the protocol’s balance sheet, USDC.

Earlier this month, MakerDAO was offered 1.25% annual interest rate on deposits of GUSD, the stablecoin of the Gemini crypto exchange, if MakerDAO adds GUSD to its Peg Stability Module, responsible for DAI price stability. Another big news was the debt ceiling increase for MakerDAO’s stETH vault to 200 million DAI, which made DAI minting free for users.

CSPR: The native token of the Casper Network, a proof-of-stake enterprise blockchain, was among the winners last week. The token jumped 18% over the week after Casper Labs, the team behind Casper Network, revealed a new enterprise-grade NFT standard on its blockchain.

However, the recent uptick in price is barely visible on CSPR’s long-term chart, as the token fell victim to a crowded CoinList sale and tokenomics issues. The price-performance over the last year is also highly reflective of the lack of activity on the network. Overall, it’s unlikely that CSPR would be able to keep the momentum up for long, especially in this bear market.

No surprises among losers

CEL: We would expect to see CEL on the top losers list every week this autumn, but the crypto market fools us again and again. Finally, the token of a bankrupt crypto lender Celsius is plunging, but not because of the fundamental reasons one could expect, no. 

CEL lost 35% of its value in one week on the news that the company’s former CEO Alex Mashinsky continues to move crypto - CEL and USDC tokens -  out of his wallets.

In late September, Mashinsky resigned as the boss of Celsius in the middle of bankruptcy proceedings, though promising to continue to help the company “provide creditors with the best outcome.” It was later revealed that Mashinsky cashed out nearly $27 million worth of crypto from custody accounts right before Celsius declared bankruptcy.

It turned out this week that the six wallets identified as Mashinsky’s wallets have been steadily emptying over the past month, according to on-chain data from analytics platform Nansen. Since the start of October, Mashinsky has sent almost $1 million in CEL and USDC from his wallets to MetaMask and Uniswap, according to Nansen data.

The crypto land is wild, and even the industry’s big names may turn out to be not what they seem to be, as proven by 3AC’s Su Zhu, Terra’s Do Kwon, and now, Celsius’ Mashinsky.

CHZ: The native coin of an entertainment-focused blockchain network and the creator of Socios.com platform Chiliz (CHZ) is among the biggest losers for the second straight week. CHZ dropped 14% over last week, with the total retracement from the peak reaching 29%.

Back from the hack?

The native token of the Binance Chain, BNB, was one of the strongest performing cryptos since the start of the bear market, but it took a little beating as its network suffered a major exploit.

Notably, the attack didn’t affect any user wallets as the hackers managed to create $560 million worth of the BNB token out of thin air using a weakness in the Binance cross-chain bridge.

Specifically, the hackers took advantage of the bug in Binance Token Hub Bridge proof verification mechanism. The bridge accepted false arbitrary messages from hackers, which allowed them to mint 2 million BNB tokens.

To cope with the hack and prevent the funds being moved off-chain, the BNB Chain validators (who are believed to have ties to Binance, the world’s largest crypto exchange) temporarily halted the network.

With the network stopped, the hackers were only able to sneak away with 10% of the initially stolen tokens, as per Elliptic data. They traded BNB for a variety of Ethereum-based tokens and some stablecoins, but their USDC and USDT tokens were frozen before the hackers were able to get them out of the network.

BNB price was affected by the attack, falling from \(293 to \)280 following a relatively stable trading day before quickly recovering a share of the losses. This 4% loss seen in the BNB token doesn’t seem serious, but the losses from the hack might not be over for BNB.

Looking at the performance of cryptocurrencies that also faced major hacks, it can be seen that the first reaction to the news - unsurprisingly - triggers a sell-off in the token, but this negative momentum weighs on the long-term performance of the token.

According to Coin360 data, Harmony’s ONE token dipped 36% in the weeks after the network was exploited on June. 24, 2022, and Axie Infinity’s AXS token plunged 53% a month after the Ronin network suffered a $625 million hack that was revealed on Mar. 29, 2022.

Prior to the hack, BNB outperformed BTC and ETH, as evidenced by September data. This has been a theme throughout the year. BNB has seen strong relative YTD performance, with yearly returns of -44% compared to ETH’s -66% and BTC’s -60%.

It’s an open question now whether BNB would be able to stay strong amid the bearish market, also probably dealing with the ramifications of the hack.

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Disclaimer: None of the information here constitutes financial advice and market participants are advised to conduct their own research since cryptocurrencies are speculative assets with considerable risks.