TBW Free #5: Fear on the crypto markets

TBW Free #5: Fear on the crypto markets

Read all about it in The Big Whale's fifth free newsletter.

11 May 2022

Hello everyone 👋

Here's the free edition of The Big Whale 🐳. With this version, you have the essentials to learn how to swim in the ocean of Web3. And when you feel ready to go further, subscribe to the premium edition for the best crypto news every Thursday morning.


This week's news 🧠

👉Bitcoin takes a big hit

Unless you haven't been on the internet for a few days, you must have seen that the crypto markets have plunged. Since Monday, they have lost more than 15% and bitcoin is trading just above $30,000. Don't look for any particular reason for this plunge: it's due to the general context. First and foremost, the decision by central banks, especially the US Federal Reserve (Fed), to gradually raise interest rates to combat inflation. No risky asset will escape the downturn in 2022! Investors' eyes are now firmly fixed on what comes next: if the dollar falls sharply below $30,000, a large number of automatic sell orders could be triggered, which could exacerbate the current slide. According to most analysts, the scenario of bitcoin falling to $25,000 or even $20,000 (the former all-time high in 2017) would not be surprising. While we wait to see what happens in the coming weeks, let's not forget that bitcoin remains the best-performing asset for ten years.

👉 Coinbase loses momentum

It's not just cryptos that are devolving. On Tuesday evening, US exchange Coinbase published disappointing results, with sales of $1.2 billion. This was well below expectations ($1.5 billion). The Wall Street reaction was swift: already in trouble, the share price of the company with 89 million customers continued to plummet. The group is currently worth just over 15 billion dollars, compared to over 60 billion dollars less than a year ago. This decline is not just due to the fall in the share markets. Like all the other players in the sector (Binance, FTX, etc.), the company run by Brian Armstrong is having to deal with falling volumes, after two extremely buoyant years.

👉 Crypto start-ups 🇫🇷 continue to raise funds

While the markets and some giants are stalling, some start-ups are continuing to grow. Particularly in France. NFT nugget Arianee has just raised €20 million from US fund Tiger Global (and other investors such as Bpifrance). With this money, the company specialising in the tokenisation of real products wants to strengthen its teams and expand abroad. The same goes for another French company, Bitstack. This young company (set up in 2021), which offers a system that allows you to use the rounding of all transactions that pass through your bank account to buy bitcoin, has just raised €1 million. Its application has been available since this week. It's easy to use and presents itself as an ultra-simple way of investing in the queen of cryptocurrencies. We've been testing it for a few weeks now and we'll tell you more very soon.

👉 Instagram is (finally) getting into NFTs

After months of false suspense, the American social network announced on Monday that it was going to integrate NFTs into its app. But don't think you'll be able to take advantage of it straight away: things will happen gradually. As its boss, Adam Mosseri, pointed out, it will initially be a few artists and creators who will be able to play around and test out the new system. They will share their NFTs on their feed, in their stories and will be able to put them in their profile photo. If the trial proves successful, the social network acquired by Meta (formerly Facebook) in 2012 could extend the system to everyone. But why? That's the interesting part. Because NFTs are not just a gadget for Instagram, which is now one of the most widely used platforms for brands (retail, luxury goods, entertainment) and designers to sell their products. Behind this standard, what's at stake for Instagram is its ability to remain essential in online commerce 3.0.


UST, the stablecoin that's got the whole crypto world shaking 😱

It's fair to say we had a nosey when we brought you a full feature on stablecoins last week in the Premium edition. UST, the stablecoin of the Terra ecosystem (capitalisation of $19 billion before the tragedy, currently $14 billion), has just lost parity with the dollar and dragged the entire crypto market down with it.

On Monday night, it fell to $0.60, before recovering on Tuesday to around $0.90 and falling back to $0.80 in the evening. This may seem insignificant, but the raison d'être of a stablecoin is to track the price of the asset to which it is indexed. By losing parity, it no longer serves any purpose, which is more than problematic for the 3rd largest stablecoin on the planet...

UST price:

What happened? To understand this, we need to go back to 7 May, when massive withdrawals of USTs were observed from the Anchor lending platform. Several billion dollars worth of UST were then sent to the decentralised exchange Curve, which specialises in stablecoin trading. The aim? To sell all these USTs on the markets. The immediate result of this operation was that the balance of a liquidity pool was affected by too many USTs in circulation, causing it to lose its peg to the dollar.

Unlike centralised stablecoins (such as the USDT and USDC), whose parity is ensured by dollar reserves in a bank account, the UST is based on an algorithmic mechanism. When there are too many USTs in relation to demand, the price falls. The value of the UST can thus theoretically fall to zero if its supply is too great.

⚡ ️This is why an arbitrage mechanism has been put in place to ensure its parity with the dollar.

When the UST falls below one dollar, holders can burn their UST to obtain one dollar of LUNA (regardless of the UST price), the utility cryptocurrency of the Terra blockchain. This reduces the supply of available USTs and helps to stabilise its price. Conversely, when the UST price is higher than the dollar, users can burn LUNA to obtain USTs. Got it? Except that this beautiful mechanism has seized up...

Massive exchanges on the Curve platform caused the UST to fall, sending it below the 1 dollar mark. As a result, other people began to take advantage of the arbitrage to burn USTs against LUNAs in a bid to sell the latter. The scale of the movements prevented the UST from recovering against the dollar as the Luna price collapsed. In the space of a week, the latter lost 65% of its value, despite being one of the star cryptos of recent months!

The Luna Foundation Guard, the Singaporean structure responsible for ensuring that UST parity is maintained, raised $1.5 billion at the start of the week by pledging its bitcoin reserve as collateral, but this emergency rescue was apparently not enough. According to US media outlet The Block, on Tuesday the foundation asked several funds for help in raising a further billion dollars to recapitalise UST. Potential saviours could benefit from half-price LUNA tokens with the obligation to hold them for at least two years.

It's pretty clear that we are witnessing a crisis of confidence in the third-largest stablecoin on the market. We have to consider the possibility that it may never be regained, but the consequences could be contained. UST is used very little in decentralised finance with the exception of the Anchor application and a few liquidity pools on Curve (but their weight has largely fallen with the events).

So we can put off the risk of contagion, at least in the short term. But what about afterwards? Especially as this affair has not come at the best of times... The markets are fragile and the slightest spark can set things alight. One more piece of bad news like this and Bitcoin would have no trouble breaking the $30,000 support on which investors' eyes are feverishly fixed.

Article produced with the participation of Artem Sinyakin (OAK Invest)

👉 Stablecoins are one of the most important cogs in crypto. We've got you covered.


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Important events for the next 7 days 🗓️

👉 Every week. The Big Whale is on BFM Business every Monday and Thursday from 4.35pm. You can watch a replay of Gregory Raymond's interview by clicking here, and follow Raphaël Bloch's live interview tomorrow.

👉 Monday 16 May. As we told you at the beginning of the week, The Big Whale is leaving for a fortnight in Argentina. The aim of this trip, organised at the last minute, is to get up close and personal with what's happening in one of the most dynamic crypto ecosystems. We promise you lots of things.


Tomorrow on The Big Whale Premium: The exclusive interview with Nicolas Julia (Sorare) ⚽ ️

In the ocean of NFTs, Sorare is one of the best-known and also most impressive companies. In less than four years, the French start-up, which raised $680 million in September, has established itself as a benchmark. But that hasn't stopped it from facing enormous challenges: accessibility to the general public, international development, adding new sports and new services to the game, and so on. We spent an hour talking to its boss, Nicolas Julia. Not to be missed!

This edition was prepared with ❤️ by Raphaël Bloch and Grégory Raymond The Big Whale is a free and independent media. Subscribe without obligation to our Premium edition (€9.90/month in 💳 or cryptos) to dive into the Web3 revolution. 🐳

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