The Death of Crypto? Current Market Outlook
In this edition, the markets have been creating a sentiment of capitulation, with thousands of investors weary for what is to come. With Bitcoin ($BTC) nearly 70% down from all time highs, investors have found it tough to navigate through this uncharted territory in the cryptocurrency markets. The recent price action has kept investors on edge, awaiting for a clear signal that the “bottom” may be in, but only time will tell.
Different stories have evolved over the past week, and have been big news to the cryptocurrency space. From ESG initiatives to asset management firms losing millions, it never fails to create interest.
Fear is on the Rise
Over the past few weeks, we have seen an extreme drop in the Fear and Greed Index (FGI)of Crypto. These changes have resembled accurately through the notorious events like the Luna Debacle, or the movement of Bitcoin in a negative direction. Market sentiment is a large player in the movement of the market as a whole, and seeing “Extreme Fear” on the FGI, is never a good sign for market participants.
On the flip side, some of the highest upside potential for savvy investors comes during these large swings to the fearful side. Taking a look at most of the moments when BTC was at a level of 10 or below, investors that bought during these levels usually have limited downside risk as much of the horrendous price action has already taken place. This index is a counter-traders dream where it gives great insight into how the herd is viewing the moment and how to act opposite of them.
Fear and Greed Index is an important metric for investors to look at, and could give a complete outlook through a macro lens into the markets. The past month has been filled with “Extreme Fear, swooping down from 21 to now 10, some of the lowest levels we have seen in a while.
Time can only tell how the markets will move, and news can definitely change the way its moving. Keeping an eye out, HODLing, and creating passive investments at these “discount” prices are something that investors have been waiting to jump on top of since the last run into BTC ATH. It’s a matter of time before the move into higher levels comes around, and timing it will be the hardest aspect. Dollar cost averaging wins during these times.
CoinShares Losses Through Luna Debacle
Throughout the whole storyline of Terra and their fall, a giant came down with them. CoinShares, one of the largest digital asset firms in the world, suffered losses over $21 million. As our previous articles, Terra was a main factor in pushing this market deeper than where it had been, and overall created a hazy trajectory for the future. Investors have clouded judgements, and the experiences of CoinShares might be something that other companies learn from.
Being such a large asset holder in the blockchain industry, CoinShares has taken the market by storm. The tragic events of CoinShares were a learning lesson not only for them, but for the market as a whole on what could happen, to anyone. These large firms with billions of assets under management are subject to the same amount of risk as a retail investor, and recent events have shown that.
The troubling loss of CoinShares raises the question, is crypto still too volatile for big firms to be invested so heavily? How else might firms come to solve this is an unanswered question that people are waiting to find an answer to. As regulation across global powers is created and debated on, it’s only a matter of time until governments create a market that will be less fearful for investors commencing their crypto journey.
Volume per Exchange Fluctuations?
Since the catastrophic events, volume across exchanges have been another metric that investors have pursued and used as a sign of “retail” investors exiting their positions. In the past 24 hours, Binance volume spiked to its highest levels since one of our bull run peaks from May 2021, a pretty large amount considering how much volume their derivatives typically have.
Time has seen the different ways investors were slowing down their investments prior to this last leg down, and are more cautious with how the money is being placed in the market. All the top 10 exchanges have seen hefty drops in volume. As the movement of cash is out of the market, the exciting prospects that surround the name of crypto could only mean that this money, and more, could potentially be brought back real soon.
The macro outlook can differ from each investor, but keeping an eye on not only the FGI, but also volume fluctuations across exchanges can bridge together any ideas that investors may have through their own due diligence. The different fluctuations can show that prices may be near, or a move away from beginning to track upwards, with volume expected to increase as more cryptocurrency becomes mainstream and positive news attracts investors.
Summary of Future Outlook
Bridging the gap between the past bull market and the current bear market situation, lots of investors seem to keep getting caught in “bull traps” as they call them. Over the past 10 weeks, we have been waiting for one of these fake pumps but no no avail. This unprecedented downside action has taken the air right out of markets at this point.
The downwards movements to $22,000 can seem like a movement to further the desperation, but we typically do see a recovery to the 21 Week MA (yellow)before getting pushed down by it again in bear markets.
Last week, SEC Chairman, Garry Gensler will be delivering ideas that would help out investors in the stock market. Executing orders at the best price possible will be one of the various techniques brought to light, to favor the market in the direction of investors. Decreasing some risk, and potentially creating more value for investors might shed a positive light on the markets if this comes to apply to cryptocurrency exchanges as well. Companies like Robinhood, CoinBase, and others will be subject to this as they offer market buys. They will have to assure the customer that they are buying at the low end of the current sell orders from other investors.
The S&P 500 has been on a downturn since the start of 2022, and the interest rate hikes have been at the forefront of the factors from analysts. As the crypto markets continue to correlate with the equities market, big news such as interest rate hikes will be important to keep an eye out for.
The FED plans to meet again on June 14th and 15th, which could dictate the future of the market as well. With interest rates expected to be hiked once more, only time will tell before a “bottom” is found in this market. Keeping an eye out on how Chairman Jerome Powell delivers his speech regarding inflation and the current economic state.
Lastly, fresh news regarding Coinbase laying people off and NFT projects being hacked continue to hurt the markets. Consumer sentiment tends to suffer through these events as they make people question the reality of how safe a blockchain could be. CoinBase laying people off has a lot of equities investors questioning the future of the biggest crypto exchange company in the world. The uncertainty that taints the market, with the biggest companies and projects suffering, can have events affecting the market movement as a whole.
ESG News and Updates
SEC Proposes ESG Reporting Requirements
The SEC released a proposal for placing increased ESG disclosure requirements on funds to prevent deceptive claims and greenwashing of ESG assets. This plans to have investors be more informed about what is in their ESG portfolios. The SEC proposed new reporting rules for ESG funds and advisors on May 25, 2022, including proposing that some environment-focused funds be required to disclose the greenhouse gas emissions associated with the portfolio.
The US Securities and Exchange Commission (SEC) has fined the Bank of New York Mellon $1.5 million for misstatements and omissions about its ESG considerations, as onlookers say the “party will be over for greenwashers”.The SEC announced yesterday that BNY Mellon’s penalty was a result of statements the investment bank had made from July 2018 to September 2021. These statements were that all investments in certain funds had undergone an ESG quality review.Yet, on a closer look, the SEC found that at the time of BNY Mellon’s claims, numerous investments in those funds did not have an ESG quality review score.
The swift action of this proposal has allowed for investor confidence to improve over the past few weeks. Allowing for people to know the complete truth about their investments, and know that a fund or company is not simply just greenwashing, will improve investor confidence in the long run. Keeping a strong amount of confidence between companies and investors will allow for the truth to flourish, and help push sincere funds to the top.
ESG has become a popular concept for companies to focus on, and keeping them truthful to their reports will be a different approach for green investors to look at with these new requirements that will have to be met by all companies and funds. Holding BNY Mellon accountable is only the start of deterring greenwashing from happening, and the markets can be certain that the SEC will continue to uphold this regulation.
Verra Restricting Tokenization of Carbon Offsets
Verra has announced that they will no longer allow the retirement of credits for carbon bridging. Verra, the largest carbon standard vcs by number of credits issued, released a statement elaborating their position on how carbon credit tokenization should take place. Namely, they stated the following:
“Verra will, effective immediately, prohibit the practice of creating instruments or tokens based on retired credits, on the basis that the act of retirement is widely understood to refer to the consumption of the credit’s environmental benefit.
Verra intends to explore the possibility of “immobilizing” credits in accounts in the Verra Registry so that they can be tokenized with the transparency and traceability that market participants demand, provided that this can be done in a way that prevents fraud and upholds environmental integrity.
In light of the above, Verra announced its intention to launch a public consultation on this subject, with a specific focus on:
- What enabling measures should be implemented to responsibly associate Verra instruments with crypto instruments or tokens, such as custody or keyholder arrangements;
- What know-your-customer (KYC) checks should be conducted on issuers and/or holders of crypto instruments or tokens;
- How the Verra Registry Terms of Use should be amended;
- What fee schedule, if any, is appropriate for Verra to charge in relation to crypto instruments and tokens.
In other words Verra has ensured that carbon tokenization must go through them for verification prior to being tokenized. Now instead of anyone being able to bring any carbon offset credits on-chain, Verra has created a supply bottleneck. This will severely limit supply of carbon offsets to be tokenized and limit such services attempting to provide greater access to carbon markets via blockchain.
Although the news has received mixed responses, in general the industry appears to believe that Verra is moving in the right direction by formalizing the process for carbon tokenization. Verra has proposed a consultation but until accepted industry wide standards are in place, tokenization services will need to find a workaround or stop trading.
Companies like Flow Carbon and Toucan Protocol who are actively bridging carbon credits into blockchain will continue working to upgrade traditional reporting systems alongside Verra to enhance the ESG space for the better, and further removing the opportunity for instances of fraud or inferior carbon credits.
The Bottom Line:
These are unfortunate times that we are living in whichever way you slice it. The name of the game at this point is capital preservation which is why we are seeing so much sell-off across all markets. Despite that, these are the times where opportunities present themselves in preparation for when the bulls do return. Do your research, check where the money is flowing, and stay level headed. We can survive this together.
