Investors are scared after the weekend collapse. Investors wonder if the famous S2F model is broken. Terra Luna is the rocket of the past week. Many other smart contract platforms have also fared well compared to Bitcoin. Terra has overtaken Solana in the DeFi sector.
Investors concerned about Bitcoin’s price development
The price of Bitcoin is about $47,500. A week ago, the price was about $10,000 higher. A month ago we were close to the $70,000 level! The direction has been clearly downwards in recent weeks. The current price development is also the exact opposite of investors’ expectations.
Below you can see the Bitcoin price chart over the last three months. One candle represents one day. The blue line is the 50-day moving average and the purple line is the 200-day average. Orange lines represent support and resistance levels.
The graph looks pretty dark. The positive thing is, that the price rebounded from the 200-day average. This indicates we are still in a bull market.
The events of last summer are still fresh in many investors’ memory. The so-called Death Cross was seen as the 50-day average cut through the 200-day average. At the same time, the price of Bitcoin dropped well below the 200-day average. At least the situation doesn’t look THAT bad.
Bitcoin’s price crashed about 21 percent on Saturday. The price dropped $9,000 in less than one hour. This was due to the forced liquidations in derivatives markets. Will Clemente explains the events in the tweet below.
TLDR of what happened last night:
Open interest being built up for weeks + a regime of positive funding and low weekend liquidity (meaning thin order books) gave a perfect storm for a long liquidation cascade.
These forced sells executed into thin books, thus the drawdown.
— Will Clemente (@WClementeIII) December 4, 2021
Investors were betting on Bitcoin’s price rise too aggressively. As a result, “whales” wiped traders out of the market with a couple of large sales.
Whales then grabbed cheap bitcoins from the dip. This can be considered as market manipulation. However, this is the kind of volatility that every cryptocurrency investor has to deal with.
The events of the weekend led many to question the relevance of the S2F model. Many analysts seem to have lost faith in this model, which has been one of the most important factors in Bitcoin’s price discussion since 2019.
Until a month ago, the situation looked completely different. Bitcoin was priced at around $70,000 in early November and the mood on the market was great. Four weeks later, the situation has changed completely. The mood is as bad as it was during the summer.
Bitcoin Fear and Greed Index is 16. Extreme Fear
Current price: $47,450 pic.twitter.com/MzVA47l6pj— Bitcoin Fear and Greed Index (@BitcoinFear) December 6, 2021
Most investors expected the rest of the year to be similar to 2017. This did not happen. Now many believe that the dynamics of the cryptocurrency market have changed for good. The coming weeks will show what happens.
For the time being, we do not believe that the bull market is over on a large scale. It will be over when large investors dump their holdings to small investors in a FOMO rally. We haven’t seen this yet.
However, it is good to be realistic and accept what is happening in the market. Dreams of Bitcoin $100,000 in December can be forgotten.
There are a lot of problems in the background that Bitcoin can’t escape either. Last week, Federal Reserve President Jerome Powell issued a statement acknowledging that high inflation is a permanent problem.
It's time to retire the word transitory on describing inflation, says Fed Chair Jerome Powell during Senate testimony on the economy https://t.co/DxfjyS7Jpr pic.twitter.com/WzW2rzqt1B
— Bloomberg (@business) November 30, 2021
This will result in two unfortunate circumstances. If inflation is a problem, Fed must do something about it. Fed is now planning to tighten its monetary policy by reducing the security purchases. Once this so-called tapering is completed, the next step is to increase interest rates.
Ten years of loose monetary policies are finally coming to an end. This is negative for the stock market. As the stock market falls, the cryptocurrency market will also follow.
Whatever Jerome Powell is going to do, it will also have a major impact on the cryptocurrency market.
Bitcoin’s dominance looks weak
Bitcoin’s dominance has been going down for a while now. At the time of writing this article, the dominance is 41.7 percent. Last week’s number was 41.9 percent. Not much has changed, but a downward trend can be seen clearly now.
Bitcoin’s dominance has been in a downtrend over the past few weeks. On Sunday, we saw a drop below 41%. Bitcoin has strengthened slightly since then.
The dynamics of the market have clearly changed from previous years. Bitcoin’s dramatic collapses have a smaller impact on the altcoin market.
The situation is partly affected by the sharp growth of the stablecoin market. Stablecoins are counted among altcoins and their value does not change when the market goes down. Altcoins are still doing better than they did before in similar circumnstances.
Smart contract platforms are performing well
Bitcoin’s dominance has remained almost unchanged, which also means the altcoin market is largely in the red. Smart contract platforms have done well throughout the autumn and also during the last week.
In the picture below, you can see the price development of the largest altcoins in recent days compared to Bitcoin.
Terra Luna has performed well this week. This is not a surprise, as the LUNA token has done well throughout the autumn. The same can be said of the smart contract platform Solana, which is also on the plus side compared to Bitcoin.
Other smart contract platforms such as ETH and BNB have also done well compared to Bitcoin. Polygon has climbed even 27% more than Bitcoin in the previous seven days.
Smart contract platforms have been the biggest trend of 2021 and investors are clearly interested in this sector. Proof of Stake consensus brings the possibility for staking and transaction fees are also paid with the native token. These two things bring an easy-to-understand use case for platform tokens.
The interest income from staking is also increasingly attracting institutions.
Terra passed Solana in the DeFi sector
The DeFi sector has not been spared from the general downward trend of the market. The DeFi market has been developing negatively for weeks now. The rise that lasted all autumn came to an end in mid-November. Last week TVL went up to $275 billion for a while, but there was a drastic drop over the weekend.
The TVL, which describes the total liquidity of the DeFi sector, is currently $244 billion. This means a drop of more than $30 billion in four days.
There is no real reason for concern, as the TVL is still historically high. DeFi has clearly come the market to stay. Now, however, the sector seems to be following the general direction of the market, which it has not done before.
The TVL drop can be seen in all major protocols.
Anchor Protocol is just outside the top 10 protocols. This is a lending protocol in Terra’s platform using Terra’s own UST stablecoin at its core. LUNA tokens are needed to issue UST, and these LUNA tokens will be removed from circulation. This is good for LUNA’s price development.
Terra’s success is also reflected in the ranking list of blockchains.
The list has seen a significant change as Terra has overtaken Solana. Terra is now the biggest competitor of Binance Smart Chain.
From an investor’s point of view Solana, Terra and Avalanche have all performed excellently during the autumn.
We had more bad news from the DeFi sector last week since the BadgerDAO protocol lost $120 million in assets due to a hack. About 2,100 Bitcoin and 150 Ether were stolen.
The unusual fact is that the hacker stole the funds through the BadgerDAO user interface. This was not a vulnerability in smart contracts, which is the most common cause for DeFi hacks.