--News Direct--
Global crypto markets are in dire straits, according to a new report by Huobi Research Institute, titled "Is Another Black May Coming?"
From May 4-9, global cryptocurrency market cap fell by 24%, from US$1.788 trillion to US$1.361 trillion, over the course of just five days. Both BTC and ETH have fallen by about 20%, and for the first time since 2020, both have been down for six consecutive weeks, longer than the last time crypto markets crashed from all-time highs.
In this report, researchers Barry Jiang and Hanson Chan claim that the market sell-off is caused by three primary reasons:
- The Fed's hawkish monetary policy decisions and determination to reduce inflation, even at the cost of a bear market and rising unemployment
- A concentrated sell-off of Bitcoin and subsequent movement of crypto assets to centralized exchanges
- The plunge in LUNA's market price and the de-pegging of UST, the world's third-largest stablecoin by market cap.
The Fed is Moving Aggressively to Curb Inflation
In order to curb high inflation in the U.S., the Fed initiated a rate hike. After announcing a 25BP rate hike in March, on May 5, the Fed announced an increase in the target range for the federal funds rate to between 0.75% and 1%, or another 50BP rate hike.
The Fed also announced that an unwinding of the balance sheet will start in June and rise to the cap in three months; this announcement caused both the S&P 500 and NASDAQ to fall by 9% and 10%, respectively. Compared with a similar situation in 2017, the initial size of this reduction is larger and the move is happening more quickly.
What's more is that Fed Chairman Powell did not rule out a 75BP rate hike in the near future, and even fellow Fed official Kashkari, who is known for being more dovish, mentioned that the goal was to push inflation back down to 2%.
Only time will tell if the Fed will decide to raise rates more than expected, and this could wreak havoc on an already fragile market.
Large Bitcoin Sell-Offs are Driving Crypto Markets Down
In addition to the Fed's hawkish policy moves, major declines in LUNA, a top ten cryptocurrency by market cap, and UST, the world's third-largest stablecoin by market cap, have caused more Bitcoin sell-offs.
The de-pegging of UST, which dropped to as low as 0.60 USDT/UST at one point, led the Luna Foundation Guard to use its massive BTC reserves to get the peg back. However, this may continue to generate more selling pressure and cause more instability in the market.
Where is the Market Bottom?
Huobi Research Institute believes that the market bottom can be found by calculating Net Unrealized Profit/Loss (NUPL) for Bitcoin, which represents the percentage of unrealized profit/losses in the Bitcoin market when compared to total market cap, and indicates overall profitability for Bitcoin holders.
According to Glassnode figures, NUPL stands at around 20% of total market cap, which places it firmly in the "Hope-Fear" range but not quite in "Capitulation" territory. NUPL for Bitcoin fell into "Capitulation" territory when it dropped to -40% of market cap in January 2019 and -20% of market cap in March 2020.
In short, the market bottom has yet to come, and value investors should hold off on buying.
About Huobi Research Institute
Huobi Blockchain Application Research Institute (referred to as "Huobi Research Institute") was established in April 2016. It is committed to researching and exploring new developments in the global blockchain industry. Its goal is to accelerate the research and development of blockchain technology, promote its applications, and improve the global blockchain industry ecosystem. Huobi Research Institute covers industry trends, emerging technologies, innovative applications, new business models, and more. Huobi Research Institute partners with governments, enterprises, universities and other institutions to build a research platform that covers the entire blockchain industry. Its professionals provide a solid theoretical basis and analyze new trends to promote the development of the industry.
Contact Details
Ker Zheng
+86 139 2280 3249
Company Website
https://huobiresearch.medium.com/
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