May 2022 was not for the faint-hearted. Even the most seasoned and experienced cryptocurrency traders were put to the test in the first two weeks of the month in a brutal fall after the US Federal Reserve announced that interest rates would rise by 0.5%.
Cryptocurrencies used to show less correlation with real-world events and were generally unaffected by capitalist successes and failures. However, the first five months of 2022 have seen a very stable rough peg between Bitcoin (BTC) and the S&P 500 Index. Inflation and fears of war have not been kind to both markets either.
The mimicry of cryptocurrencies with the stock market could be due to the enormous growth of the market capitalization in 2020 and 2021. At an unprecedented rate, retail equity investors have flocked to cryptocurrencies, leading to much greater overlap in price movements.
Bitcoin dipped below $29,000 before rising back to $31,800 on May 31, while Ether (ETH) dipped to just above $1,700 before prices recovered above $1,900 on May 31. May 30. But many altcoins fared much worse, and the resulting reactions from once-patient traders became as fearful as one could imagine.
Four stablecoins, two different addresses
TerraUSD (UST) was a stablecoin built on the Terra blockchain and was among the top six stablecoins by market capitalization. However, on May 9, the coin, which was designed to hold a value of $1 all the time, progressively fell to $0.29, leaving the cryptocurrency world in shock. Its price has not recovered since then.
As for the impact this had on the rest of the stablecoin landscape, there was a major “shuffle” as the reputation of a trusted stablecoin imploded overnight. Tether (USDT), the largest stablecoin by market cap, suffered its own, albeit much less drastic, drop to $0.95. It has since recovered, but there have been new claims about the currency’s solvency.
Dai and USD Coin (USDC) seemed to reap the reward amidst the debacle, as the chart above clearly indicates that the 10 largest addresses of each stablecoin show a higher level of confidence in these two assets, and coins moving in massive surges on USDT and UST (now TerraUSD Classic) exchanges. Binance USD (BUSD) cannot be ignored either, as the third-largest stablecoin grew to a market capitalization of nearly $19 billion last month.
LUNA’s tragic fall from grace
UST’s sister token LUNA Classic (LUNC) crashed from its all-time high of around $119 just seven weeks ago and is now at a staggering $0.000125, which equates to a 99.9999% drop in price and the market capitalization. UST’s decline from $1 seemed to be the final nail in the coffin, as the algorithm was not fast enough to burn LUNC when UST was in freefall due to large drawdowns on the Anchor protocol.
But while the LUNC story may seem like old news by now, the talk of LUNA 2.0 seems to bring some life and optimism. The project’s GitHub has indeed exploded with new actions at a rate never seen since the original LUNC.
Bitcoin Trader Sentiment Is at Historic Levels of Pain
Bitcoin could be bottoming out as sentiment reached its most negative levels since March 2020. BTC’s social dominance is also getting smaller and smaller. Typically, three waves of BTC dominance declines is a clear sign that traders are no longer interested in buying a frustrating and unpredictable “dip”. And when traders lose interest, prices historically wake up.
Between the social volume of Telegram, Reddit and Twitter, the three platforms have seen vastly different levels of cryptocurrency discussion over the last year, let alone the last two months. Reddit saw by far the most noticeable spike when prices bottomed out about two weeks ago, while discussions on Telegram have died down entirely.
The amount of BTC in the hands of whales is low, the number of addresses is increasing
There is good news and bad news regarding Bitcoin whale activity in May. The good news is that the number of whale addresses holding between 100 and 1,000 BTC has increased for about four months in a row, a trend that began to see a turn in late January. On the other hand, the bad news is that the total number of these addresses continues to show a long-term discharge pattern that dates back to the end of October, just before the all-time high.
Dai velocity remains low, a good sign for Ether
In the case of the leading altcoin, Ether, there appears to be a correlation between its price and the amount of velocity, which is the average number of times a coin changes wallets each day, as seen on the Dai network.
A series of major spikes in Dai velocity were seen weeks after Ether’s all-time high in mid-November, but it has been fairly dormant in recent months. As long as this metric remains at low levels, there is no threat of an isolated drop for ETH compared to the rest of the crypto market.
Ethereum rates are also encouragingly pretty sluggish
In addition to the slow speed on Dai, fees on the Ethereum network are approaching year lows. With so much gridlock between many networks, this has caused the cost per transaction to drop.
The chart above illustrates the huge spike in average fees (to $98) in mid-May. This was a clear sign that some further decline was likely. One can only hope that fees stay low where the bulls like it.
Cointelegraph’s Market Insights newsletter shares our insights into the fundamentals that drive the digital asset market. This analysis was prepared by leading analytics provider Santiment, a market intelligence platform providing on-chain, social media and development insights for over 2,000 cryptocurrencies.
Santiment develops hundreds of tools, strategies, and indicators to help users better understand cryptocurrency market behavior and identify data-driven investment opportunities.
Disclaimer: The opinions expressed in the post are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or about any specific security or investment product.