Crypto Market Sentiments Echo US-China Tensions

Key takeaways:

  • The world of crypto is feeling the pain of the equity market due to recent US-China tensions.
  • Cryptos are behaving more like risky assets recently. 
  • ETH fundamentals remains intact, as Grayscale ETH trust and DeFi are both growing.

As you may already know, the actions of President Trump are threatening to trigger new tensions with China as he has suggested the idea of imposing more special tariffs on the country as a means of retaliation for the Covid-19 issue. In fact, President Trump seems to be losing some support in some swing states as he is being blamed for not taking appropriate measures to contain the virus, and some commentators are saying that he is deflecting the blame to cover for his own faults in dealing with the virus. Wharton Business School recently published a model forecast for Covid-19, saying a full reopening of US economy by the end of June could lead to 952,210 deaths and a GDP contraction of 7.9% on a year-on-year basis for the second quarter. 

Source: Wharton Business School

Interestingly, cryptos fell on Monday (May 4, 2020) after the Asian equity markets opening. Noticeable was the correlation between cryptos and equities, that has risen significantly during recent times, which could probably be explained by the entry of more traditional investors.  

Source: Grayscale

ETH led the correction as it fell around 4.7% on Monday, while BTC only fell by 2.3%. Hodlers historically and currently play an important role in the resilience of the BTC price. 

Source: Grayscale

ETH’s fundamentals remain intact. To revisit the logic we explained earlier, Grayscale’s ETHE has bought more than 750,000 ETH this year to date, which is around 48% of the total mined ether, making Grayscale a 1.2% holder of total ether supply.  Defi has just gained around 2.7 million ethers, making itself a 2.4% holder of the total ether supply. Please visit “Why are Investors Paying a 400%+ Premium on ETH?” for more details. 

Source: Aleth IO
Source: Coin Metrics

The number of DeFi users has increased exponentially to almost 160,000. This represents a daily growth rate of 0.56%. If you don’t understand what the rate means, let us put this way: If Defi’s number of users continues to grow at this pace, it will reach 1 million by March 2021, and 10 million by May 2022. However, also be reminded that Defi’s staking is skewed to some whales. For example, a MakerDao CDP (Collateralized Debt Position) holder #3088 deposits 127,274 ETH, 17 times the position of the second largest MakerDao CDP holder. Meanwhile, on the InstaDApp, around 80% of deposits came from only three accounts.