Yesterday, we saw a sharp sell off in the crypto markets with a massive leverage wipeout of around $3.5B in liquidations reported, with the real numbers likely being even higher. The flash crash saw BTC & ETH plunge -18.5% and 25% respectively off their recent highs. Over-leveraged traders were punished in the major deleveraging event.
To put the cherry on top, gas fees on the Ethereum network spiked as high as 7000 with the recent NFT drop “The Sevens” making it impossible for many investors to transact. The liquidation cascade and panic to exit markets increased gas further. The gas fees to mint The Sevens was $5000 alone.
NFT’s have been responsible for Ethereum being deflationary as we see massive hype around these projects and their respective derivatives. Below we can see Ethereum’s first deflationary day as burned fees offset the block reward emissions.
The Sevens was responsible for nearly 1300 ETH being burnt yesterday, outpacing the community favourite NFT marketplace, OpenSea.
With this being said, OpenSea activity is slowing down, with daily volume dropping 50% since its 29th August high as well as daily transactions dropped roughly 30%. For what it’s worth, volume is still higher than what we saw in the first 2 weeks of August.
FUD OF THE DAY:
Yesterday we saw El Salvador enact the law to make Bitcoin legal tender. Some speculate this was a “buy the rumour, sell the news” event. Others point towards the technical glitches that were experienced with the official digital wallets – that was later resolved. The main point of concern for investors were the IMF stating this adoption of Bitcoin as legal tender would be a inadvisable shortcut & warned it was taking it a step too far. It will be interesting to see how the IMF retaliates, but the fact is, Bitcoin is now legal tender in El Salvador and they have acquired 550 BTC.
According to a 21 post thread by Brian Armstrong, Co-founder and CEO of Coinbase, the SEC has threatened to sue Coinbase over a new lending program which was set to release soon, stating it is a security.
In short, the SEC isn’t protecting investors or promoting fair & safe markets. Based on the thread, this seems to be intimidation tactics and a power grab. It is more accurate in saying they are preventing new entrants to the market than actually protecting current investors.
This isn’t the only regulatory FUD as we see regulators in Hong Kong clamping down on the asset class. This isn’t new, in May, regulators in HK proposed limiting access to crypto to those with portfolios larger than $1 million. This would effectively cut off access to 93% of the population. Since then, multiple exchanges have halted or limited trading activity in HK.
When looking at the total crypto market cap, we can see a max drawdown of roughly 17% as nearly the entire market collapsed. A few standout names that held up well and/or continued to make new highs : Solana and it’s ecosystem, Near and Algorand.
DeFi, Social Media and NFT’s remain attractive as we see the healthy cleanse of leverage. Centralised exchanges like Kraken also had down time yesterday whereas decentralised exchanges remained functional – This is bullish.
Total value locked (TVL) in DeFi fell around 25% however recovered sharply. It appears crypto-asset TVL has fallen and stablecoin TVL has increased with an exception to a few protocols. It will be interesting to see how this trend develops.
Overall we saw BTC outflows from exchanges with illiquid supply increasing and long term hodl’ers increasing their holdings. The trend is likely to take some time to recover and consolidate before the next leg up. To stay up to date with the market moves & for more articles like the one above, subscribe to our blog.