Market Wrap: Cryptos, Stocks Tumble Amid Extreme Bearish Sentiment

Selling pressure intensified in both cryptos and stocks on Monday as investors continue to reduce their exposure to speculative assets.

Bitcoin (BTC) dipped toward $30,000 for the first time since July of last year. Technical indicators show support between $27,000 and $30,000, which is the bottom of a year-long price range. Still, negative momentum on the daily, weekly and monthly charts means BTC is at risk of additional breakdowns, similar to what occurred during the 2018 crypto bear market.

Most alternative cryptos (altcoins) underperformed bitcoin on Monday, which typically occurs in a down market. For example, Polkadot's DOT token, Decentraland's MANA token, and Dogecoin's DOGE were all down by more than 17% over the past 24 hours, compared with an 11% drop in BTC over the same period.

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Meanwhile, the S&P 500 reached new lows for the year as tech stocks continued to underperform.

The Chicago Board Options Exchange's CBOE Volatility Index (VIX), a popular measure of the stock market's expectation of volatility based on S&P 500 index options, has been elevated over the past few months, reversing its downtrend from March 2020 highs. That means further price swings are likely, which typically forces traders to hedge against downside risk.

Latest prices

●Bitcoin (BTC): $31,302, −9.48%

●Ether ETH$3,896.38: $2,297, −10.28%

●S&P 500 daily close: $3,991, −3.20%

●Gold: $1,853 per troy ounce, −1.51%

●Ten-year Treasury yield daily close: 3.08%

Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.

No capitulation yet

The bitcoin Fear & Greed Index is at the lowest point since January 24, which marked a temporary price low for bitcoin around $32,900.

The index has remained in "extreme fear" territory over the past month as traders grappled with macroeconomic and geopolitical risks. Still, the index can remain in the "fear" zone for a few months before an upside in price occurs. For example, in 2018 the index moved erratically between "fear" and "greed" levels for a full year before BTC's price exited a bear market phase.

For reference, BTC had a peak-to-trough decline of 80% in 2018, compared with its current 50% drop from its all-time high around $69,000 reached in November of last year.

Other market indicators show no signs of capitulation among sellers yet. For example, bitcoin's volume ticked higher over the past 24 hours but remains below its Jan. 24 peak, according to CoinDesk data.

Further, short-term bitcoin holders continue to dominate selling behavior. The volume of BTC selling, however, is not as extreme compared with earlier this year, according to blockchain data reviewed by CryptoQuant.

So far, El Salvador has bought the dip, which previously occurred around major price drops over the past year.

Bitcoin realized price at $24K

Some analysts expect BTC to eventually stabilize at lower price levels, with some estimating between $24,000 and $27,000.

The chart below shows the average realized price (average cost basis among traders) at $24,300. Historically, realized price levels have marked price lows, which preceded long trading ranges or a strong uptrend in price.

Glassnode data also compares BTC's market price to its realized price (MVRV ratio), which does not signal capitulation. A move toward $24,000, however, could push the MVRV ratio into oversold territory.

From a technical perspective, BTC confirmed a breakdown below $40,000 last week, which could yield an initial downside target toward $27,200, according to Katie Stockton, managing partner at Fairlead Strategies.

Altcoin roundup

• Trouble in Terra land: UST, Terra blockchain’s stablecoin, lost its dollar peg twice over the past 48 hours, falling to as low as $0.98 Monday. UST is the largest algorithmic stablecoin, with a $18 billion market capitalization, and it uses the LUNA token to absorb any price deviation from the $1 peg. However, critics say UST's design is inherently flawed and vulnerable to attacks. After the de-peg, LUNA fell sharply to $51.3, down by 50% over the past month. Read more here.
• DeFi tokens sink: The locked value on decentralized finance (DeFi) protocols fell to a yearly low as it lost some $27 billion over the past weekend. Curve, a stablecoin swap platform and the largest DeFi protocol by total value locked (TVL), fell nearly 10% in value in the past week, while Lido, the largest staking service, saw a 13% drop and Terra’s Anchor took a 21% fall. The drop is likely due to falling token prices and risk-off sentiment in the broader market. Read more here.
• S&P rates Compound: Decentralized finance platform Compound’s enterprise arm, Compound Treasury, received a B- rating from the coveted credit rating agency S&P Global. It appears to be the first time an "institutional DeFi" product has been scored by one of the major credit rating agencies, and Compound Treasury’s Reid Cuming said it is a sign that interest from institutional investors is growing towards DeFi. Read more here.

Relevant insight

• Bitcoin Tumbles to Lowest Price Since July 2021 as Market Panic Grows: Cryptos slumped across the board all weekend and added to declines Monday morning as global equity markets swooned.
• UST Stablecoin Falls Below Dollar Peg for Second Time in 48 Hours: The development comes after the Luna Foundation Guard announced that its massive bitcoin reserves will be used to defend UST’s dollar peg.
• Mark Zuckerberg Says Instagram Will Test NFTs Starting This Week: Meta (FB) is also working on 3D augmented reality non-fungible tokens that will be compatible with Instagram stories.
• Luna Foundation Guard Lends $1.5B in BTC and UST for Stablecoin Peg: The move comes after UST briefly lost its peg to the U.S dollar over the weekend.
• Bitcoin Funds Had Surprise Inflows as Markets Plunged: ​​Some $45 million flowed into these funds in the week through May 6. Investors apparently bought the market dip.
• The Bahamas’ ‘Sand Dollar’ Needs Improved Cybersecurity, IMF Says: The central bank digital currency represents just a tiny fraction of the available currency in the Caribbean nation, the international organization noted.

Other markets

Most digital assets in the CoinDesk 20 ended the day lower.

Biggest Gainers

There are no gainers in CoinDesk 20 today.

Biggest Losers

Asset Ticker Returns DACS Sector Polkadot DOT −16.0% Smart Contract Platform Litecoin LTC −15.1% Currency Cardano ADA −15.0% Smart Contract Platform`

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.