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What could be behind the $300 billion drop in crypto markets?

CEX.IO

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In this week’s crypto highlights, we explore the recent sell-off in crypto markets and other notable industry news items that occurred over the last seven days. Without further ado, let’s dive into the latest market developments.

Market spotlight: A crypto sell-off ahead of Bitcoin halving

Crypto markets currently resemble tomatoes in a blender. Most digital assets in the top 100 by market cap saw double-digit price drops, including BTC and ETH. As a result, the total crypto market cap lost more than $300 billion in a week, according to Coinmarketcap.&

Notably, Bitcoin’s dominance hit a three-year high, indicating that altcoins were the largest victims of this crypto market sell-off.

Here are a few catalysts that arguably turned digital assets into a crimson sea:

  • Tensions in the Middle East — Over the weekend, Iran launched a massive air attack on Israel in retaliation to the bombing of its consulate in Damascus on April 1, and crypto markets were among the first to react. Bitcoin lost around 7% in a few hours, while numerous altcoins dropped by 10% or more. Stablecoins and gold-backed tokens temporarily witnessed increased trading activity following the event.
  • Risk aversion on TradFi markets — A fear of a new potential international conflict, higher-than-expected inflation in the U.S., and a possible delay of The Federal Reserve’s interest rate cuts are all raising investors’ concerns. These developments could put risky assets under increased pressure.
  • Bitcoin halving — Bitcoin historically experienced downward movements ahead of its halving, and this move could be a part of a so-called Bitcoin halving correction.
  • U.S. spot Bitcoin ETFs — Over the last four trading sessions, they experienced net outflows. Most U.S. spot Bitcoin ETFs temporarily showed zero flows, potentially indicating decreased interest among market participants. GBTC didn’t stop experiencing outflows, although Grayscale’s CEO claimed that they might be stabilizing.
  • Liquidations — This is considered an aggravating factor, as cascade liquidations typically occur after increased volatility. According to Coinglass, over $2 billion in liquidations of long positions happened over the last week.&

As a result, this fueled increased bearish sentiments within the community, with some analysts claiming that a larger correction could be on the horizon. In addition, the recent BTC price action indicates a theoretical formation of a triple-top pattern, with $50,000 as a potential target.&

However, some market observers remain optimistic, as Bitcoin historically experienced a price rally within 12-18 months after past halving events. Furthermore, the market experiencing a price consolidation following Bitcoin’s rally to a new all-time high could be considered a healthy development.&

Lower timeframes also hint at a possible price rebound, as the RSI and Awesome Oscillators (AO) formed a bullish divergence (cyan lines).&

Other noteworthy market events

Uniswap received Wells notice from the SEC

Another potential catalyst that impacted a sell-off in crypto markets could be a legal action against the largest decentralized exchange (DEX), Uniswap.

The U.S. Securities and Exchange Commission (SEC) sent Uniswap a Wells notice, signaling a potential enforcement action. In response, Uniswap Labs’ founder Hayden Adams said he is “not surprised” by this development, and is “ready to fight.”

Certain members of the crypto community treated the SEC’s claims against Uniswap as an attack on the broader DeFi ecosystem, and echoed solidarity with Uniswap, emphasizing industry unity in the face of regulatory challenges. Marvin Ammori, Uniswap’s Chief Legal Officer, criticized the SEC’s move as an “abuse of power,” highlighting perceived weaknesses in the agency’s arguments against the platform.

Following this event, UNI’s valuation experienced a more than 30% weekly price drop. While some crypto enthusiasts are hopeful this case could help define DeFi’s status in the U.S., others think the SEC might not stop on Uniswap, and could move further into the DeFi space. This perspective might be a potential driver of double-digit price drops across other DeFi tokens, especially DEX ones.

Hong Kong approved spot Bitcoin and Ethereum ETFs

Last week, multiple Chinese asset managers indicated their interest in providing spot Bitcoin ETFs through subsidiaries in Hong Kong. It seems now they can do so.

On April 12, Bloomberg reported the imminent approval of spot crypto ETFs in Hong Kong. Three days later, Hong Kong’s Securities and Futures Commission (SFC) approved applications from several Chinese asset managers to introduce spot Bitcoin and Ether ETFs. This event temporarily caused a slight price recovery in Bitcoin and Ether markets.

Notably, Hong Kong’s crypto ETFs will support in-kind creations, allowing the issuance of new ETF shares using BTC and ETH, in contrast to U.S. spot Bitcoin ETFs, which presently permit only cash creations. ETF analyst Rebecca Sin suggested that this aspect could spark increased inflows and trading volume for associated products.

However, Bloomberg ETF analyst Eric Balchunas tempered some of the excitement, highlighting that the Hong Kong ETF market is relatively small and inaccessible to Chinese locals, at least officially. He also pointed out that these ETFs could potentially carry 1-2% fees, and experience wide spreads due to lower liquidity. Consequently, he anticipates that Hong Kong ETFs may struggle to attract more than $500 million.

According to OSL Digital Securities, Hong Kong’s digital asset platform that acts as the sub-custodian for two ETF issuers, new products may be launched as early as this month.

MarginFi faced massive outflows amid CEO resignation

While many were anticipating Bitcoin’s halving, one of the largest Solana DeFi protocols, MarginFi, experienced its own type of halving — a 50% decrease of its total value locked (TVL) in a week.

On April 11, Edgar Pavlovsky announced his resignation as CEO of MarginFi, citing disagreements with the company’s practices as the primary reason for his departure. MarginFi moved quickly to reassure its users that the change in leadership would not disrupt the platform’s operations. However, this sudden exit triggered users to withdraw over $150 million from the platform in a day.

Pavlovsky’s resignation coincided closely with accusations leveled against MarginFi by SolBlaze, a Solana liquid staking protocol. SolBlaze alleged that MarginFi had acted in bad faith by failing to distribute tokens to users as outlined in SolBlaze’s depositor reward guidelines. Nevertheless, SolBlaze later confirmed that it had resolved communication issues with the MarginFi team.

Ethereum’s next upgrade could allow private key recovery

Losing private keys is like Voldemort in the world of crypto — something one doesn’t want to mention, or encounter. This could be one of the largest fears that stops many crypto enthusiasts from choosing a self-custodial wallet. But Ethereum contributors plan to change this situation.

Ethereum developer Tim Beiko confirmed that EIP-3074 will be integrated into the upcoming Pectra upgrade, scheduled to take place in late-2024 or early-2025. This enhancement will introduce new functionalities for wallets, including a mechanism for recovering lost private keys.

To utilize this recovery tool, users must initially transfer ownership of their assets to an invoker contract via a digital signature. This contract will then execute future transactions and function calls on the user’s behalf. While ownership is delegated, the message within the digital signature will enable the user to reclaim their assets if they lose or forget their seed phrase.

Another feature introduced in EIP-3074 is that users wouldn’t need to keep ETH in their wallets to send transactions, as the entity behind the invoker contract can pay for transactions “upfront.”

DeFi developer 0xngmi said that the main downside of this EIP is the ability “to fully drain an address (all tokens, all NFTs, all DeFi positions) with just one bad signature.”

One sentence news

  • Solana developers rolled out the first batch of updates to fix issues related to network congestion, but the amount of failed transactions currently remains relatively high.
  • Chainlink introduced Transporter, a bridging app designed to transfer tokens and messages across different blockchains by utilizing its cross-chain interoperability protocol (CCIP).
  • Crypto exchange OKX announced the public mainnet launch of its Ethereum-based layer 2 (L2) scaling network.
  • Coinbase and Google Cloud joined EigenLayer as operators after its mainnet launch.
  • AI protocols SingularityNet, Fetch.ai, and Ocean Protocol gained community approval to merge their tokens, and create the Artificial Superintelligence Alliance.
  • Stablecoin issuer Circle enabled USDC transfers for BlackRock’s first tokenized fund.

Tune in next week, and every week, for the latest CEX.IO crypto highlights. For more information, head over to the Exchange to check current prices, or stop by CEX.IO University to continue expanding your crypto knowledge.

Disclaimer: For information purposes only. Not investment or financial advice. Seek professional advice. Digital assets involve risk. Do your own research.


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