Crypto Market Begins Its Climb Back After Last Week’s Carnage

Crypto Market Begins Its Climb Back After Last Week’s Carnage

 Published: May 28th, 2021

The crypto market began its climb back after a week of plummeting prices that saw Bitcoin and other major coins lose as much as 30 per cent of their value.

Numbers from analytics platform CoinGecko suggest things are picking up again, driven in part by month-end options on Deribit due to close Friday. The firm said it’s not unusual in a week where month-end options are ending to see a trend reversal. ‘Current figures point to a recovery towards max pain price points,’ the company said in a note to clients.

In derivatives trading, "max pain price point" refers to the price level where an asset attracts a maximum of open call and put options. It’s also the price where investors can lose the most money if they bit incorrectly.

Max pain for Bitcoin is USD 50,000 and for Ethereum USD 3,000 for Ethereum. At press time, Bitcoin has drifted back to ca. USD 34.000, while Ethereum is climbing more rapidly, trading at around USD 2,500.

In the mayhem of last week’ crash, both coins lost between 50 per cent and 60 per cent, respectively, falling precipitously from their all-time highs.

Amid the wreckage are a few bright spots. Two cryptos in particular are outperforming the rest: MakerDAO (MKR) and Polygon (MATIC). Their prices had nearly doubled in mid-week trading. Polygon spiked from USD 0.77 to a peak of USD 1.58.

MKR, the governance token for popular DeFi platform MakerDAO, followed a similar trajectory. Since the start of the week, its price has leapt from USD 1,836 to USD 3,600.

Other DeFi tokens like Uniswap and Aave are posting huge gains too, with Aave up 50 per cent, while Uniswap’s price rose by a full 53 per cent.

What’s going on?

Altcoins in general seem to be on the march. Exotics like Harmony (up 56.3 per cent), Fantom (up 46 per cent), and OKB (up 17.5 per cent) are just a few of the fastest-rising cryptocurrencies this week.

Alongside those developments, total crypto market capitalisation has rebounded by more than USD 300 billion, getting back to above USD 1.624 trillion. Bitcoin has bounced back spectacularly, driving the coin’s dominance index (BTC’s market share versus other crypto assets) back above 45 per cent after falling to a multi-year low of less than 40 per cent.

Blockchain analysts like Coin Metrics are still insisting that the crypto bull market is very much intact, despite last week’s trading carnage. They point to on-chain data that suggests a surge in crypto newbies taking advantage of the recent price dip to hoover up digital assets for the first time.

With most coins are still deep in the red zone, however, it may be a few days or even weeks before the market settles into more predictable territory.

Bitcoin leads the pack … into an abyss

Bitcoin plunged 30 per cent to drop below USD 30,000 at one point last week, the trough of a significant selloff in cryptocurrency markets that began the week before.

BTC’s drop triggered a selling frenzy in crypto that brought bitcoin and other majors down to levels not seen since late January.

Bitcoin began to rebound as the week went on, rising to about USD 38,000 before falling back this week. Last Friday, BTC had posted a loss for the week of more than 40 per cent.

That price plunge meant bitcoin had temporarily evaporated all the gains made after Tesla’s announcement that it would buy USD 1.5 billion worth of the coin and start accepting it as payment for its posh electric cars. BTC is down more than 50 per cent from the record high of USD 64,827 set in late April.

Other cryptocurrencies got caught in BTC’s undertow. Ether dropped more than 22 per cent to reach USD 2,600. Dogecoin, the crypto that began its life as a social media meme, fell 25 per cent in less than 24 hours to touch below 37 cents USD.

Uniswap and other DeFi exchanges all on the up

Despite the carnage, May has been a blockbuster month for decentralised exchanges (DEXs). As decentralised finance (DeFi) assets like Ethereum bounce back and recoup some of their losses, crypto analytics firm Glassnode says there are consistent signs of hope across the DeFi ecosystem, both for stablecoins and attracting liquidity too.

In a post-mortem analysis following the crypto crash, Glassnode wrote to investors that heightened volatility is pushing DEX volumes to all-time highs.

‘Decentralised exchanges saw a record USD 11.6 billion in trading volume fairly early in the crypto selloff, which is interesting because asset prices were in free fall. In the same period, the total number of unique 30-day traders passed by the one million mark for the first time.’

Uniswap was the biggest beneficiary of the surge in DEX volumes, chalking up USD 5.6 billion in volume and capture 80 per cent of all trades.

DEX’s like SushiSwap and Uniswap are blockchain-based protocols that let traders buy, sell, or swap assets without having to cede custody to a third party.

They can do that thanks to smart contract technology. This automated code base allows lending and trading to happen on the blockchain without an intermediary like Coinbase or Binance taking a cut. While those centralised exchanges broke down temporarily under the excess trading volume generated by the selloff, Uniswap remained active and stable because of the decentralised, bottleneck-free nature of the Ethereum blockchain.

Despite the Ethereum blockchain’s apparent resilience, it struggles to overcome the stigma of high transaction costs, ‘gas’ fees paid to miners. These traffic tolls fluctuate subject to network congestion. During the height of the crash, gas fees rocketed upward as many DeFi protocols are built on Ethereum.

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