Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
You can access all of our platforms from a single Saxo account.
Crypto Weekly: Withstanding the contagion
Mads Eberhardt
Cryptocurrency Analyst
Summary: Many crypto lenders are halting withdrawals, citing liquidity issues. The largest stablecoin Tether redeems its stablecoin without any issues, even though some think it is not fully backed. The world of sports has been heavily sponsored by crypto in the past years, e.g., with 19 out of 20 Premier League teams having at least one crypto sponsor. This might come to an end now, though.
Does Tether withstand the contagion?
For the past weeks, contagion has spread throughout the crypto market, leading to multiple centralized crypto lenders halting withdrawals, citing liquidity issues. On Friday, crypto lender Voyager joined other crypto lenders like Celsius, CoinFLEX, and Babel Finance in halting withdrawals. It is evident that several lenders are de facto insolvent, however, none have so far publicly stated this. Alongside the crash of the stablecoin TerraUSD in early May, the contagion has fueled fear of additional crypto firms being insolvent. This has led investors to withdraw funds from riskier platforms and projects.
Hereof, investors have been severely worried about the backing of the largest stablecoin Tether. Tether has never been particularly transparent around the funds allegedly backing its stablecoin 1-to-1. Following the crash of TerraUSD, Tether deviated from the dollar to as low as $0.97 on exchanges, because investors feared that Tether would follow in the footsteps of TerraUSD. However, it seemed that market makers and proprietary traders were not that nervous. Instead, they acquired Tether on exchanges at a discount to redeem them directly at Tether for one dollar a piece. Tether had almost recovered its peg a few days later, however, its market capitalization had meantime decreased from around $83bn to $75bn. Since then, its market capitalization has further decreased to its present supply worth around $66bn. Yet, Tether has seemingly experienced zero issues in successfully redeeming $17bn worth of its stablecoin to fiat for the past months.
Tether acts as a cornerstone in the crypto market, and in case Tether is not fully backed, the market will be severely hard hit since. Moreover, market participants will then be nervous that Tether has artificially pumped crypto prices by trading them against a stablecoin which is not fully backed. Tether’s CTO went to Twitter last week saying that: “Tether portfolio is stronger than ever”.
While Tether’s supply has greatly decreased in the past months, the supply of the second largest stablecoin USDC has increased from around $48bn to $55.8bn. USDC is known to be much more transparent concerning its reserve backing its stablecoin. However, particularly traders still favor Tether, because trading pairs quoted in Tether are often much more liquid compared to similar USDC trading pairs.
Premier League’s love affair with crypto
According to The Athletic, 19 out of 20 Premier League clubs have at least one sponsorship deal with crypto-related companies, such as cryptocurrencies and exchanges. The crypto industry has for the past years emerged from the shadows, particularly sponsoring various sports. Simply, you cannot watch an F1 race or a Premier League match without seeing the names of multiple crypto companies. For the near term, this will certainly be less frequent, as many crypto companies are cutting costs, for instance, Coinbase and Crypto.com have recently fired employees. In terms of Premier League (and arguably the crypto market in general), as the saying goes, easy come, easy go.
Latest Market Insights
Quarterly Outlook 2024 Q3
Sandcastle economics
-
-
Bonds: What to do until inflation stabilises
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.
-
Equities: Are we blowing bubbles again
Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.
-
FX: Risk-on currencies to surge against havens
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.
-
Commodities: Energy and grains in focus as metals pause
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.