Defi Defections Add Macro Pressure to Crypto Token Prices

NEW YORK, NEW YORK, USA, June 17, 2022 / — ALT 5 Sigma Inc., a global fintech that provides next-generation blockchain-powered technologies for tokenization, trading, clearing, Settlement, Payment and Custody of Digital Data Instruments publishes its Digital Assets Weekly.

• Locked Collateral and Margin Calls Add Selling Pressure in Crypto

• Ether underperforms given its use in defi protocols

• Crypto Market Cap Falls Below $1 Trillion

The combination of a tougher macro backdrop and crypto-specific pressures arising from tensions in the area of ​​decentralized finance (defi) have weighed heavily on crypto token prices.

Macro headwinds remain in the medium term but should be less so in the short term

Macroeconomic conditions are likely to get worse before they get better. The events of the past week with impressions of high inflation, a series of central bank tightening measures and outsized declines in stocks and bonds have left a mark on sentiment that will be evident for some time. .

There are few events scheduled in the coming week that have the potential to shed light on the macro fundamentals driving the markets. This could allow for some near-term consolidation of recent losses in financial assets in general. However, the reality is that the combination of high inflation, tighter monetary policy and downside risk to economic growth will, to some degree, persist as a headwind for crypto token prices. In the coming months.

The effects of defiant defections continue to be felt

In the defi space, it is still unclear how the Celsius situation will evolve. So far, there has been no announcement on when or how they might start resuming withdrawals/trading on their crypto lending platform after suspending them on June 12th. In the meantime, they have locked in counterparty collateral in a way that could force some to liquidate other holdings to meet margin calls.

Margin calls and blocked guarantees

There is little public clarity on any of these possible actions or transactions. But at the very least, it remains a significant drag on sentiment and, by extension, crypto token prices. Additionally, this follows – and may be in part due to – the collapse of the TerraUSD/LUNA project and tokens last month. We characterize it this way because losses resulting from the fallout from Project LUNA may cause some of the affected investors to liquidate other defi/crypto holdings in order to meet their own margin calls or risk parameters.

As an example, on Friday the CEO of Blockfi, a major crypto lending platform, tweeted that “we have fully accelerated the loan and fully liquidated or hedged” all associated collateral from a large client who does not failed to meet its obligations. This public statement coincided with numerous news reports of a crypto hedge fund facing liquidations and possible insolvency.

Ether underperforms bitcoin

Blockfi shares are surely not isolated and may well be followed by others, contributing to a sell-off cycle. It could also play a role in ether’s underperformance (-44%) against bitcoin (-34%) since this latest wave of price declines began on June 9-10. This is because many smart contracts in defi are built on the Ethereum blockchain. Therefore, the collapse of the TerraUSD/Luna protocol last month, and now the current halt to Circle withdrawals, could add further selling pressure in ether in particular, as it is a widely used vehicle. to access these protocols.

Crypto Market Cap Falls

Some attention will be paid to the fact that the total market capitalization of crypto token assets has now fallen below $1 trillion (according to data from CoinMarketCap) alongside the latest price decline. As of June 17, it was around $905 million. By any measure, this is a painful setback from the peak capitalization level of nearly $3,000,000 reached last November.

The Fed’s Liquidity Pump, and Its Subsequent Pivot, as Catalysts

However, it is also useful to recognize these milestones in context. First, the peak in market capitalization occurred alongside the approximate peak in financial asset prices last year. The subsequent price reversal was a direct result of the Federal Reserve’s monetary policy “pivot” in November 2021, where the central bank signaled that it would begin reversing the massive liquidity injections it had begun in March. 2020 to help counter the negative economic effects. of the pandemic.

Comparisons with pre-pandemic price levels are instructive

Looking a little deeper, the total crypto market capitalization had only passed the $1 trillion threshold in January 2021, helped (again) by central bank (and fiscal government) liquidity. which inflated the value of a wide range of financial and real assets, including crypto prices. For comparison, in the two years before the start of the pandemic in March 2020, the total crypto market capitalization ranged from around $100 million to $450 million.

This is in no way an effort to trivialize recent losses. Rather, it may be helpful to view these declines in the context of the dramatic rise in crypto token prices over the past four years, and to recognize that the current market capitalization is still well above, or even a multiple of what it is. she was only 3-4 years old. from.

Robert Lynch
Research and Strategy Manager
ALT 5 Sigma Inc.
[email protected]


ALT 5 Sigma is a global fintech that provides next-generation blockchain-powered technologies for trading, clearing, settlement, payment and safe custody of digital instruments. ALT 5 was founded by specialists in the financial sector out of the need to provide the digital asset economy with security, accessibility, transparency and compliance. ALT 5 offers its customers the ability to buy, sell and hold digital assets in a safe and secure environment deployed with best practices in the financial industry. ALT 5 Sigma’s products and services are available for banks, brokers, funds, family offices, professional traders, retail traders, digital asset exchanges, digital asset brokers, developers blockchain companies and financial information providers. ALT 5’s digital asset custodian services are secured by Fireblocks.

Digital Assets Weekly is for informational purposes only and does not constitute, expressly or by implication, any provision of services or products by ALT 5 Sigma (“ALT 5”). Investors should determine for themselves whether a particular service or product is suitable for their investment needs or should seek such professional advice for their particular circumstances. ALT 5 Sigma. makes no representations or warranties to any investor regarding the legality of an investment, the tax or income consequences, or the suitability of an investment for such investor. ALT 5 Sigma does not solicit or provide financial advice. This is at the sole discretion of the individual.

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