Market Wrap: Cryptos Decline Amid Choppy Trading, DeFi Tokens Underperform

Bitcoin (BTC) traded in a choppy range over the past week as volatility ticked higher. That could reflect uncertainty among crypto traders.

BTC was down by 3% over the past 24 hours and is roughly flat over the past week. Meanwhile, several alternative cryptos (altcoins) underperformed on Friday. For example, Solana’s SOL token was down by 5%, and Avalanche’s AVAX token was down by 4% over the past 24 hours.

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On Friday, the S&P 500 briefly fell into bear market territory, declining by more than 20% from its record high in January. Volatility remains elevated in both stocks and cryptos, while gold, a traditional safe haven asset, ticked higher on Friday.

On the macroeconomic front, some analysts expect selling pressure to wane in stocks, which could benefit cryptos short term. Bitcoin has been increasingly correlated with the S&P 500 over the past year.

“It is premature to worry about an approaching recession until the bond market and central banks push monetary conditions into restrictive territory, which we do not expect in 2022,” MRB Partners wrote in a Friday email. The firm expects a window of opportunity for equity markets to rebound as global growth conditions prove resilient, assuming interest rate expectations and bond yields calm down soon.

Latest prices

DeFi underperforms

Decentralized finance (DeFi) tokens have underperformed bitcoin over the past month. Typically, DeFi and other altcoins underperform in a down market because of their higher risk profile relative to bitcoin.

The CoinDesk DeFi Index (DFX) is down by 33% over the past month, compared with a 23% decline in the CoinDesk Bitcoin Price Index (XBX) over the same period.

Over the past week, however, DFX has stabilized. Recent gains in AAVE have helped, while a 17% drop in CRV token has detracted from the overall index’s performance over the past week.

Altcoin roundup

• The fall of Terra: CoinDesk’s Krisztian Sandor and Ekin Genç packaged a detailed timeline of Terra’s journey from its underdog start as a payments app in South Korea to a $60 billion crypto ecosystem to one of the biggest failures in crypto. Read more here.
• Luna Foundation Guard has no plans for AVAX: Avalanche, a smart-contract blockchain, said in a tweet that Luna Foundation Guard (LFG) – the entity behind the reserve fund set up to backstop the Terra blockchain’s now-failed UST stablecoin – has “disclosed no plans” for the 2 million AVAX tokens that are now sitting in its treasury. With the token’s price fluctuating at around $30, the market value of the AVAX stash is about $60 million, making it the second-largest holding in LFG’s dwindling $240 million treasury. Read more here.
• Terra’s DeFi apps at a loss: Data from trackers shows funds held in DeFi applications built on Terra slumped to $155 million in locked value as of Friday morning, a level last seen in February 2021, from more than $29 billion at the start of this month. Locked value on Terra DeFi peaked at $30 billion in early April. The declines came as UST lost its 1:1 peg against the U.S. dollar amid a broader slump in markets. Read more here.

Relevant insight

• Listen????: The CoinDesk Markets Daily podcast unpacks bitcoin’s steeper tumble and looks at what’s behind the biggest stablecoin of them all.
• Coinbase Co-Founder Fred Ehrsam Buys the Dip, Purchases $75M of Company Stock: The purchases were made via Paradigm, a venture capital firm that Ehrsam co-founded.
• BIP 119: Unpacking CTV and How It Would Change Bitcoin: Right now, we can only use Bitcoin scripts to designate when or why a bitcoin is spent. But what if we could use it to designate how a bitcoin is spent?
• Crypto Should Meet Same Norms as Regular Finance, G7 Says: Finance ministers want to see financial stability and money-laundering standards in effect soon, citing recent market turmoil.
• Goldman Sees Little US Economic Impact From Lower Cryptocurrency Prices: The stock market decline has had a much larger effect on U.S. household net worth, the bank said.
• UK Regulator to Consider Terra Coins’ Collapse in New Crypto Rules: Report: Market instability in stablecoins will need to be taken into account, the FCA’s executive director for markets said.
• CFTC Charges 2 Men With Running a $44M Crypto Ponzi Scheme: Sam Ikkurty and Ravishankar Avadhanam are accused of using YouTube videos to dupe would-be clients into investing in various crypto funds.
• Former BitMEX CEO Arthur Hayes Faces 6 to 12 Months in Jail at Sentencing Hearing Friday: Hayes pleaded guilty to one count of violating the Bank Secrecy Act in February, and faces a sentence of up to 12 months in prison.

Other markets

Most digital assets in the CoinDesk 20 ended the day lower.

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.

UPDATE (May 18 20:45 UTC): Adds information on the U.S. stock markets and their declines.