Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Crypto Weekly: Let’s call it Terra 2.0 and try again
Mads Eberhardt
Cryptocurrency Analyst
Summary: From being intensively correlated to the equity market this year, the crypto market deviated significantly last week when it tumbled. This might indicate that investors are now more willing to take on risk in the equity market than in crypto. Terra, the crypto that blew up earlier this month launches a version 2.0 but is somewhat ignoring that it has caused a meltdown worth billions.
Highly correlated to stocks, then suddenly not
So far this year, the crypto market has been unusually correlated to the equity market, particularly to technology stocks, during this time of risk-off sentiment. Yet, the markets went opposite directions last week. While the leading NASDAQ index was up around 6.7% last week, Bitcoin and Ethereum had tumbled by around 5% and 14.7%, respectively, at close on Friday. Bitcoin recovered most of its losses over the weekend but is still far from surging 6.7% as NASDAQ. At the moment, Ethereum is down by 8.3% since the beginning of last week. If the lack of correlation continues, it can raise more unrest in the crypto market, since it may indicate that investors are increasingly more willing to take on risk in the equity market than in crypto, possibly extending the tumbling of crypto. Thus, we encourage traders to watch the crypto market’s correlation with equities ahead. To follow in the footsteps of NASDAQ, Bitcoin needs to break its resistance at 31,500 (BTCUSD) from its current price of 30,600. If it breaks this resistance, a surge to 36,000 is possible. However, if it breaks its support at 28,500, we can see Bitcoin as low as 20,000. Ethereum traded the lowest against Bitcoin this weekend since October last year at 0.06 ETHBTC. So even though the highly anticipated Ethereum merge is coming up, it seems that Bitcoin is still perceived as the safest crypto asset, which investors are more unwilling to liquidate in times of risk-off and increased uncertainties compared to Ethereum and other cryptocurrencies. Based on this matter, it is likely to see Ethereum and other cryptocurrencies percentage-wise tumbling more if Bitcoin breaks support at 28,500.
Terra 2.0 launches
One of the larger cryptocurrencies Terra blew up earlier this month by entering a death spiral, wiping out a combined $58bn market capitalization – $40bn for LUNA and $18bn for its stablecoin UST - at their respective highest. Fast forward not only one month, and Terra 2.0 launched this weekend. The idea behind Terra 2.0 is to restore its ecosystem of various protocols, this time without its native stablecoin UST. Terra 2.0 was distributed to holders of Terra. At the time of writing, Terra 2.0 has a market capitalization of $1.2bn.
At some point, one should acknowledge one’s defeat and let a project die out. Terra should have been such a project. In our view, Terra has already caused enough harm to individuals and the crypto market as a whole. It genuinely seems the people behind Terra believe that they can always give it a new shot, in case their first effort did not turn out well, thus neglecting that their flawed design has already caused a meltdown worth billions. The case of Terra does not put the crypto market in a good light nor does the Terra 2.0 narrative of “let us just try again”. The crypto market should focus on projects that create value to become something else than a speculative asset class.
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