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Crypto market lost $1 trillion from market cap during Black Wednesday week

2021.05.24 Robbie Liu

The over-leveraged crypto market has been reset as $1 trillion in value was wiped out — Market Watch Weekly 

Last week, the cryptocurrency market suffered its worst flash crash in more than a year. The total market capitalization fell to $1.467 trillion from May 12’s peak of $2.585 trillion, a drop of more than 40%. BTC dropped to as low as 29,000 USDT on Black Wednesday per OKEx spot price — its lowest level since Jan. 22. While the closing of short positions and spot buying allowed the price to recover a bit over the weekend, BTC still recorded a negative 23% return last week.

Wednesday’s sell-off has caused BTC to completely lose its support at the 200-day moving average, and it has been running below this bull/bear threshold for five days — which is longer than any previous time a bull run resumed after falling below.

Trading sentiment on OKEx remained subdued over the weekend as BTC futures open interest didn’t see any pickup and as the funding rates of perpetual swaps are now completely reset. 

BTC has not been able to recover the 200-day MA for five days. Source: TradingView

Asset managers turned bearish ahead of price dive

On the institutional side, CME updated the latest (as of May 18) Bitcoin futures position data on May 22. In this reporting period, BTC retraced over $14,000, and it’s worth noting that the first trading day after this reporting period was Black Wednesday. 

The open interest during this time saw a steady uptick from 8,469 to 9,522 contracts (with a standard contract being 5 BTC). This OI rebound came after more than one month of declines. 

Meanwhile, asset-manager accounts saw their long positions increase slightly, from 383 to 393 contracts, while their short positions jumped from 910 to an all-time high of 1,085 contracts. This indicates that asset managers turned bearish in the last reporting period and made the right call before the price dive. 

However, leveraged funds largely increased their long positions, from 2,319 to 3,279 contracts, while short positions went up from 5,419 to 6,136. With the share of long positions on the rise, it would appear that leveraged funds could not avoid the sell-off.

CME Bitcoin futures data — number of leveraged funds' longs vs. shorts. Source: Quandl

Major altcoins generally lost 50%

Major altcoins dropped significantly, and 40%–50% weekly losses were commonly seen on the charts. ETH performed slightly better, with "just" a 38% drop for the week, but lost around 60% of its value from its top.

Weekly returns of major altcoins, 5/17 to 5/23. Source: TradingView

As a result, the Altcoin Season Index, which has been on an upward trend this year, took a violent hit, slipping rapidly from Tuesday’s high of 98 to 78 on Sunday. Meanwhile, Bitcoin dominance rebounded from nearly a three-year low of 40% to the current 48%, as per data from TradingView

Altcoin Season Index. Source: BlockchainCenter

Locked value in DeFi saw a big pullback

The total value locked in DeFi, dominated in USD, slipped sharply from $80 billion to $50 billion in a span of the week, according to data from DeFi Pulse. The drop is in line with the declining percentage of ETH's value.

The big three lending protocols still dominate the TVL rankings, however, with Maker at the top with $8.1 billion locked, followed by Compound’s $7.2 billion and Aave’s $7.15 billion. 

A surprise came in the form of Polygon, a layer-2 protocol that saw a rapid surge in its ranking. The current $5.36 billion TVL brought it to fourth place, ahead of Uniswap and Curve

Total value locked in DeFi. Source: DeFi Pulse

In terms of weekly returns, none of the major DeFi tokens have fallen by less than 30%. Meanwhile, Yearn Finance announced a YFI token purchase worth $1.47 million during the downturn. 

Weekly returns of major DeFi tokens, 5/17 to 5/23. Source: TradingView

Looking ahead this week 

Minutes from last Wednesday's Fed meeting revealed an interesting message, as market expectations for inflation gradually retreated but concerns about early tapering began to pick up. The three major stock indexes rebounded after moving lower in the first half of last week, and the Volatility Index — or VIX — fell back after Wednesday.

Consumer confidence and new home sales data will be released next Tuesday. Due to the lack of macro guidance, institutional investors will turn their attention to the Federal Reserve FOMC meeting in the middle of next month.

As for BTC, this new week may bring some price recovery as trading volumes return to the market after a second dive during the weekend. 

OKEx Insights presents market analyses, in-depth features, original research & curated news from crypto professionals. 

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Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.