First Mover Americas: The Bitcoin Death Cross

Good morning, and welcome to First Mover. Here’s what’s happening this morning:

• Market Moves: Risk-off drives bitcoin lower. The cryptocurrency's three-day chart shows an impending death cross.
• Chartist's Corner: ‘Built to Fail?’ Why TerraUSD’s growth is giving finance experts nightmares.

And check out the CoinDesk TV show “First Mover,” hosted by Christine Lee, Emily Parker and Lawrence Lewitinn at 9:00 a.m. U.S. Eastern time.

• Sergey Vasylchuk, founder and CEO, Everstake
• Maxim Galash, CEO, Coinchange
• Dan Jeffries, managing director, AI Infrastructure Alliance

Market Moves

By Omkar Godbole

Bitcoin's bear market has plenty of steam left. That's the message from an impending death cross on the lesser-followed three-day chart, where each candle represents 72 hours.

The death cross occurs when the 50-candle simple moving average (SMA) crosses below the 200-candle SMA. Aficionados of technical analysis consider the ominously sounding chart pattern a warning of a more profound price drop.

And while its predictive powers are constantly questioned, given it is based on backward-looking moving averages, its past record on the three-day chart as a doom indicator is perfect.

Bitcoin's stalled bear market resumed with prices falling by more than 40% in the weeks following the confirmation of the death cross on the three-day chart in mid-November 2018. Similar price action was observed following the death cross of mid-December 2014.

Notably, bitcoin BTC$92,350.64 bottomed out a month later on both occasions. In other words, the post-death cross sell-off marked the final legs of the then-bear markets.

So, if history is a guide, bitcoin could be in for another round of beating before prospects turn bright.

Risk-off

Bitcoin dropped to $38,300 early Monday as renewed coronavirus outbreak in China threatened to worsen the high inflation-low growth situation facing the global economy. Ether ETH$3,302.94 followed suit, dropping to $2,800 at one point, the lowest since mid-March.

Bitcoin's implied volatility, or expectations for price turbulence, spiked on aggressive options buying.

That was expected, given the implied volatility looked cheap compared to its historical standards and lifetime average. The implied volatility is mean-reverting. Therefore, savvy traders buy options when the implied volatility is cheap and sell when it is expensive.

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• GPUs Get Cheaper as Ethereum’s Switch to PoS Gets Closer
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‘Built to Fail’? Why TerraUSD’s Growth Is Giving Finance Experts Nightmares

By David Z. Morris

Late on Monday, April 18, the stablecoin terraUSD (UST) edged out Binance’s BUSD to become the third-largest stablecoin by market cap. There are now nearly $18 billion UST in circulation. That’s well below the nearly $50 billion total for Circle’s USDC, or the $82 billion worth of Tether’s USDT roaming the Earth.

But UST is also much different from those competitors, in ways that could make it incredibly risky.

Stablecoins are tokens tracked by a blockchain, but in contrast to assets like bitcoin BTC$92,350.64, they’re intended to consistently match the buying power of a fiat currency, most often the U.S. dollar. Stablecoins were first created to give active crypto traders a tool for moving quickly between more volatile positions, though as we’ll see, the potential for big interest rates on loans has also helped attract capital.

USDT and USDC are so-called “backed” or collateralized stablecoins. They keep their 1:1 dollar “peg” because they are (ostensibly) backed by bank accounts holding dollars, or by other dollar equivalent assets, for which tokens can be redeemed – although Tether has been notoriously reticent to specify the nature of its reserves.

UST, by contrast, began life as what’s known as an “algorithmic” stablecoin. These could also be referred to as “decentralized” stablecoins because decentralization is their primary reason for existing. A collateralized stablecoin like USDT or USDC is reliant on banks and traditional markets. That makes them in turn subject to regulation, enforcement and ultimately, censorship of transactions. Circle and Tether are run by centralized corporate entities with the ability to blacklist users and even seize their funds. Both systems have done this, sometimes at government behest.

In principle, algorithmic stablecoins like UST don’t have this censorship risk because they are not run by centralized corporate structures and do not hold backing in traditional institutions like banks. Of course, in reality “decentralization” is relative, and most such systems today still have key men, such as Do Kwon at Terraform Labs, or affiliated organizations that provide labor and funding. Whatever a system’s “decentralized” branding, regulators can still go after such public targets, a risk that’s worth keeping in mind.

Read The Full Story Here: ‘Built to Fail’? Why TerraUSD’s Growth Is Giving Finance Experts Nightmares

Today’s newsletter was edited by Omkar Godbole and produced by Parikshit Mishra and Nelson Wang.