Digital Assets Morning Call: May 12, 2022

Written by Robert Lynch
on May 12, 2022

Downward momentum in crypto assets broadens

Momentum overtakes fundamentals

Contagion evident as Tether’s peg to the US dollar briefly breaks

US accounting standards coming for crypto

Selling pressure in major crypto assets persists, taking bitcoin and ether to levels not seen since December 2020 and March 2021 respectively.

The break of much-watched technical support levels has added to the downward momentum and made it the more dominant price driver, more so than the still important changes in the macro backdrop.

We say that because of the outsized losses in many crypto assets has accelerated in recent days.

Bitcoin (BTC) fell over 35% from its post-FOMC highs on May 5 to its overnight lows. Conversely, price movements in traditional financial assets have been less volatile, with the Nasdaq Composite Index down 12% over that same time span, while the price of the active US Treasury 10-year note is actually up about 2%. The higher volatility of Bitcoin relative to the Nasdaq or US Treasuries certainly plays a role too, but the intensity of the current move has become more crypto-centric.

New proposals to support TerraUSD

Terraform Labs, the group supporting TerraUSD (UST) and LUNA, has outlined a series of measures to support both tokens, including burning a sizeable amount of UST coins (up to 1 billion) and staking an additional 240 million LUNA tokens to support the network, according to a report on It is not clear how or if those proposals will be enacted. In the meantime, UST has recovered some ground to trade at 64-cents currently, while LUNA is trading at 48-cents, down from above $80 a week ago (price data according to coincap).

Crypto contagion evident in Tether (USDT) decline

The de-pegging of UST also appears to be causing contagion selling in other stable coins. Overnight Tether (USDT) fell below 96-cents, causing the organization’s chief technical officer to tweet that tether is honoring USDT redemptions at $1, and had redeemed $300 mln in the prior 24 hours.

Unlike TerraUSD, Tether is a collateralized stablecoin which in practice means it has the ability to redeem outstanding tokens with US dollars on a 1:1 basis. The distinction between collateralized and uncollateralized stablecoins should ultimately matter and favor the former over the latter. And that has already been demonstrated in the relatively modest losses and quick recovery in USDTs price relative to UST. That said, the contagion currently evident in crypto assets broadly increases the short-term vulnerability for many of these tokens.

Accounting standards for crypto holdings in the works

On the regulatory front, the Financial Accounting Standards Board (FASB), which sets accounting standards for US companies, will consider setting clear rules on the accounting and disclosure of certain digital assets. The move should represent another step towards mainstreaming digital asset holdings for firms not directly involved in the space.

Recall that just last week, MicroStrategy took a charge in Q1 based on the decline in value of bitcoin held on its balance sheet. MicroStrategy is one a handful of public companies outside of the digital asset space that hold bitcoin on its balance sheet. The volatility of bitcoin may still be the primary consideration for corporate treasurers in deciding whether to hold digital assets on their books. But the advancement of formalized accounting rules will be an important step towards greater crypto adoption.

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Robert Lynch

Robert Lynch

Head of Research and Strategy | Robert Lynch is an experienced financial market strategist, focusing on macro markets including currencies, interest rates, commodities and cryptocurrencies. He is trained and practiced in the analysis of economic developments, monetary and fiscal policy, political events and technical indicators in order to generate actionable investment solutions.