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Wednesday, November 30, 2022

Bitcoin slips to a new annual low – these are the reasons

Bitcoin (BTC) continued to slip south over the weekend after uncertainties surrounding the stablecoin TerraUSD (UST), marking a new historical low of USD 32,064 on Monday, May 9th.

Reasons for Bitcoin price weakness

  • In addition to the well-known reasons for the persistently strong US dollar and the simultaneous weakness of the US technology index Nasdaq , liquidity uncertainties in the Terra (LUNA) ecosystem in the meantime caused the rumor mill to seethe.
  • Several factors caused the in-house TerraUSD (UST) stablecoin to be temporarily de-pegged over the weekend. TerraUSD lost its peg to the US Dollar for several hours.
  • According to various tweets, there was a concerted sales cascade of the stablecoin UST.
  • Users Mudit Gupta and Life in DeFi describe the start of the UST sell-off as a coordinated attack on the Terra ecosystem.
  • Accordingly, 84 million US dollars of TerraUSD were dumped on the market to trigger panic among Luna investors.
  • Although UST was able to recover shortly after the sell-off attempt and regain its peg to the US dollar, the interim devaluation led to a massive price slide for Terra (LUNA) to currently USD 59.80.
  • The ninth-largest cryptocurrency is trading a good 25 percentage points below its closing price on Friday, May 6th.

Terra Labs countermeasures provide stabilization

  • In order to stabilize the Terra ecosystem and slow down the ongoing sell-off of the last few days, the Luna Foundation Guard (LFG) claims to have lent Bitcoin and TerraUSD totaling 1.5 billion US dollars to an unknown marketmaker.
  • Despite this stabilization measure, some users in the crypto community fear that the LFG could also part with its recently accumulated Bitcoin holdings.
  • Quite a few investors attributed Bitcoin’s price slide in the last three trading days to the sell-off of TerraUSD and Luna.
  • However, according to Terraform Labs founder Do Kwon , the $750 million in bitcoins were only lent out to restore liquidity and thus security to TerraUSD.
  • The fact that the price of UST was able to quickly recover to 1 USD underlines the resilience of the Terra ecosystem.

Complex problems on the financial market as the reason for the sell-off

  • Although the uncertainty about a lack of resilience in the Terra ecosystem may have increased the sell-off in Bitcoin, this factor is just one of many potential reasons for the current weakness of the crypto currency.
  • Rather, it currently seems to be a mixture of political, economic and resulting uncertainties among investors, which is mainly responsible for the widespread sell-off on the global financial markets.
  • As long as investors remain on the sidelines and no bullish countermovement is initiated by the bull camp, investors should keep their feet still for the time being.
  • From the current perspective, a relapse to the historical lows of summer 2021 seems increasingly likely. Whether Bitcoin can stabilize around the psychologically important USD 30,000 mark should become clear in the coming trading days.
  • However, since the summer months on the classic financial market are statistically weak stock market months, an expansion of the correction in the direction of USD 26,000 or even USD 20,000 cannot be ruled out.

Disclaimer: The price estimates presented on this page do not represent buy or sell recommendations. They are merely an assessment by the analyst.

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