Market instability hits bitcoin, while Meta launches NFT support and Gucci accepts crypto

eToro’s market analyst and crypto expert Simon Peters gives us his weekly crypto and blockchain update, this week focusing on the decline in value of the cryptoasset market.

Before we get into Peters’ assessment, analyst Josh Gilbert put bitcoin’s decline into perspective saying, “Bitcoin had been quite resilient so far in 2022, given the current state of the macro environment – but is now feeling the full effect of the market correction.  

“Bitcoin’s rising correlation with other asset classes is climbing, such as equities and stocks. In that sense, bitcoin is the victim of its own success, with more institutions getting involved and therefore trading differently from around 3-4 years ago. 

“Bitcoin is now facing its biggest test after breaking below US$30,000. This is the lowest bitcoin has been since July 2021, and if the move below US$30,000 is sustained, we could see some heavy selling, which could spell further downside in the short term. 

“Inflation data coming out of the US on Wednesday will be key to this market correction. If we see inflation start to ease year-over-year and stabilise month-over-month, this could potentially help calm markets.

“Investors should buckle up for a volatile few days ahead and remember the basic tenets of investing: diversify, understand what you are investing in, control your emotions and never invest more than you can afford to lose.”

Compounding struggles for cryptoasset market

The cryptoasset market faced a major sell-off last week, compounding struggles for the market since the beginning of the year.

Bitcoin has seen its value plunge 16% in the past few days, having traded up to around US$39,000 earlier in the week. It has been on a downward path since Thursday and is currently trading just above the US$33,000 level. It is now over 50% down on its all-time high (ATH) set in November last year. 

Ether has suffered a more severe fall of around 17% since Thursday as the cryptoasset has struggled in the face of many market obstacles. Ether traded up to around US$2,900 on Thursday but has since fallen away to trade just above US$2,400.

The concern now for cryptoasset investors is when the slide will end. The market is caught in the wider adversity of investment markets that are battling to decide where comfortable levels are in the wake of interest rate hikes designed to quell soaring inflation around the Western world. 

The market is now moving more closely with other major risk assets such as tech and other stocks. This is indicative of the major shift in the presence of institutions within the cryptoasset market, which now account for a much greater proportion of ownership and tend to bundle their decision-making on crypto with other major assets.

While perhaps not succour for cryptoasset investors facing significant falls, there is a wider point here that retail investors are no longer facing the market alone and the very presence of institutions as holders is a positive for the long-term value and potential.

Market volatility and underperformance tends to correct in time so what is key now is for investors to ensure they’re happy with their investment cases and are prepared to stay the course for more volatility ahead.

Market instability threatens UST stablecoin peg

The ongoing uncertainty of the cryptoasset market has caused the UST stablecoin to briefly lose its peg against the US dollar.

UST is one of a basket of stablecoins that are essentially digital tokens that mirror the value of traditional fiat currencies. UST uses a basket of assets in order to maintain the peg with USD but this is being tested by adverse market conditions.

Over the weekend there was dumping of assets onto various platforms and removal from liquidity pools. US$150 million in withdrawals came from the stablecoin’s backers, Terraform Labs (TFL), which redeposited the money once it realised UST was depegging.

It is not the only time the stablecoin has temporarily depegged its value from USD. But the environment of fear and uncertainty in the crypto market at the moment has made it more probable. TFL now has a job, like a nation state would with a fiat currency, to defend the peg.

This essentially means throwing assets at it to maintain its value. The worrying thing here is oftentimes when a country faces a currency crisis it can only defend its money for so long before the price has to fall. This may soon be the case with UST depending on TFL’s reserves. 

Meta to launch NFT support

Reports are circulating that support for NFTs on Meta’s platforms such as Facebook and Instagram could be imminent. 

The plans will use blockchains such as Solana, Ethereum Flow and Polygon per a CoinDesk report. A pilot scheme is set to launch as early as today. 

It comes at a tricky time for the NFT market. Amid wider cryptoasset – and indeed traditional asset – sell-offs NFTs have seen market values drop significantly. But some launches that continue to come through are still witnessing really strong demand, suggesting appetite is still there to hold some of these assets. 

The impact of Meta launching NFTs won’t necessarily change the face of the market, but it will likely help to grease the wheels of it, so to speak. Any opportunity for the technology to be easier for normal people to access is a good thing and helps the future potential for the market. 

Gucci to start accepting crypto

Fashion brand Gucci has said it plans to accept cryptoasset payments in some of its US stores. Customers will be able to pay in cryptoassets such as bitcoin, dogecoin, ether, litecoin and shiba inu. This is set to be launched in its LA branch and in New York too. 

While the move of the luxury brand into crypto is unlikely to be the break that bursts the dam of cryptoasset use, it is a notable moment to see a trendsetter like Gucci engaging with the space.

While forays into NFTs from luxury brands have been fairly frequent in the past year, they still lag broadly on cryptoasset payments. Fashion brands such as Gucci make a living as trendsetters, so it will be interesting to see if any more fashion houses follow suit to keep up.