Market report for traders

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What’s happening in the market?

Trading between the range of AU$42,265 and AU$43,956 this week, bitcoin sits at AU$42,955 at time of writing, with a 4% upturn.  Meanwhile, Ethereum is also in the green with a 5.92% increase, landing at AU$2,896. In other altcoin news, Cardano is up 21.62%, Solana also enjoyed a positive week with up 27.41%, Avalanche rose by 14.36% while Polkadot increased by 26.24%.

Lunacy abounds

An exhausting week of volatility has left both a fiery aftermath and myriad opportunities in its wake. After Terra’s LUNA crashed 99% in a matter of days when its algorithmic stablecoin UST lost its peg, forcing some exchanges to officially halt network activity in a move designed to prevent governance attacks.The Terra fiasco further affected Decentralised Finance protocols which had a tough time weathering the storm, as the total value locked in defi on Thursday, 12 May was down 39.26% since April 3, from AU$331B to AU$200B.

But all was not lost as just days after LUNA’s collapse, the coin pumped by 1000%, and at one point was +2000%, hitting an intraday high of $0.000595 before quickly retracing over 50% of that move before bouncing.

TerraForm Labs CEO Do Kwon is already conjuring a recovery plan to save the Terra ecosystem by forking it into a new chain sans terraUSD (UST) touting the moment as “a chance to rise up anew from the ashes.”

Global village crypto

Development plans for an ambitious new Bitcoin city were unveiled by El Salvador President Nayib Bukele last week after the nation made its latest BTC purchase. Specific details of the city were withheld with no mention of a completion date, except that the city will host lots of greenery as well as a blue sea and an airport. To support the project, the government is looking to raise a AU$1.4B bitcoin-backed bond, which is supposed to mature in 2032, offering an interest rate of 6.5% annually.  

The country has also hosted an International Conference of Central Banks this week to discuss El Salvador’s bitcoin adoption and its benefits around the three key areas of financial inclusion, digital economy, and banking for the unbanked respectively.

In Europe last week, Germany's federal finance ministry issued guidance on the income tax treatment of crypto, the first nationwide instructions on the topic. The guidance deals with issues like mining, staking, lending, hard forks and airdrops, as well as the tax treatment of buying and selling bitcoin and ether. Under the new provisions, staked or lent cryptocurrencies are still tax free if held for over one year.

Technician’s Take

Bitcoin holds for now, was it down because of LUNA?

While there has been much media attention focused on the demise of LUNA and the horror stories that have come out of the crash, like people losing their life savings, or worse, getting into debt to acquire LUNA and then being left with nothing but debt after the price crashed to almost zero. Even the biggest exchange, Binance had their investment of LUNA go from its peaks of AU$2.28 billion to a rather paltry AU$3,500. 

So what does this highlight? While those of you that have been following this column for a little while probably get sick of me harping on about risk/money management and setting stops, this is not something I mention purely due to regulations, it is something that I myself have had to learn (the hard way). 

It can be very difficult to take emotion out of trading, however one needs to remind themselves that the simple purpose of investing is to make money. While no trader will ever be 100% successful, ensuring that your unsuccessful trades are not the end of your foray into trading, and ultimately your end goal of making money, it is very important to remove emotion from your trading and stick to your trading plan. Taking a loss and coming out with a bruised ego is always better than letting ego take over and putting your own, or your family’s’ financial freedom in jeopardy. As always, the golden saying of “Don’t invest what you can’t afford to lose” should also be in the back of your mind.

The cryptocurrency market is a financial market and will go up and it will go down, it’s the nature of the beast. While sometimes the markets behave like there is only blue sky and sunny weather ahead, they will eventually reverse, maybe not always back to where they started, but they will reverse, and more often than not they will then also bounce back. 

While there are some that have been burnt by current movements in the crypto market, this is most definitely not unique to crypto, just ask anyone who bought stocks in large blue chip firms recently, or people who thought lithium stocks would only go up.

Meanwhile back in the world of Bitcoin. With the UST being backed by around 80,000 Bitcoin (~US$3 billion), the instant the UST became unpegged from the USD the LUNA foundation started selling these Bitcoin to try to get UST re-pegged to the USD, unfortunately this failed and also added more down pressure on the price as more liquidity became available and the owner was keen to sell. While this may very well have contributed to the rapid reduction in price, Bitcoin has bounced back a little and seems to be holding the ~AUD$42k support line for now. 

Needless to say that MACD is still bearish and RSI oversold and the RSI MA is still in a downward trend.

Beginners recap:

• Bitcoin (BTC) appears to be holding the ~$42k support
• Relative Strength Index (RSI) is bearish
• Moving Average Convergence Divergence (MACD) is bearish
• Watching for confirmation for a continuation or reversal
• Remember to plan your trades and trade your plan!

Disclaimer: Information provided is for educational purposes and does not constitute financial product advice. You should obtain independent advice from an Australian financial services licensee before making any financial decisions. As cryptocurrencies remain volatile, all prices and percentages may have changed since the time of writing.