WHY IS THE CRYPTO MARKET IN RED?
According to experts, two major factors are driving the Crypto market sell-off:
The US Federal Reserve raised interest rates by 0.5% on May 4th, as expected by the market. Chairman Powell’s reassuring remarks aided the rise of high-risk assets such as stocks and cryptocurrency. However, on May 5, the Bank of England (BOE) warned that inflation could reach 10%, accompanied by a 1% drop in GDP, causing the market to collapse. High-risk assets, such as stocks and cryptocurrency, plummeted sharply.*
This price drop reveals a flaw in the price-holding mechanism of the stablecoin UST. When the price of bitcoin falls, BTC reserves must be sold in order to keep the UST exchange rate stable. The sell-off continues to put downward pressure on the BTC price. This is referred to as a “cancellation loop” because as the price falls, more BTC must be sold in order to maintain the UST exchange rate.*
WHAT IS THE CRYPTO MARKET THINKING?
There are currently more BTC and ETH (put) put options contracts than call (call) contracts, up from 8% to 15%, indicating that market confidence will remain low in the near future. The key support levels of USD30k for BTC and USD2k for ETH should be noted.
The next significant event is the release of the US consumer price index (CPI) on Wednesday (May 11). This is an indicator for the market to assess the Fed’s ability to raise interest rates to combat inflation, and it will have a direct impact on high-risk assets like stocks and cryptocurrency.