“Fear” jumps to new highs as Bitcoin tumbles down to yearly lows

The Crypto Fear and Greed Index is used to gauge market sentiment by generating a single number between one and a hundred at any given time. 

Note a scale of one (1) indicating extreme fear and one hundred (100) for excessive greed.

How is the Fear and Greed index applied to reading crypto market conditions?

To help the reader understand this sentiment tool, extreme fear (0 - 25) refers to periods of above-average selling, whereas excessive greed (75 - 100) might point to abnormal buying activity. 

The meter currently indicates a reading of nine (9), indicating extreme fear and hinting at extraordinary selling pressure.

Wondering how the Fear and Greed Index is quantified for Crypto? Make sure to check out the full writeup in Technical Outlook Edition #172 for more context 👉

But considering the present cryptocurrency market conditions, the technical practitioner will take that mantra with perhaps a little more than just a grain of salt—there are many centralised lenders and yield generators under stress due to monetary tightening. 

The term Monetary Tightening has featured in leading headlines around the world. In simple terms, the term refers to a form of policy adopted by a central bank when raising interest rates and deposit ratios for commercial banks to stem the flow of available credit. 

Reducing the supply of credit is inherently contractionary for economic growth, which is why central banks may adopt this line of policy to tame concerns of increasing prices or when seeking to control inflation. 

Celsius is the most recent of these lenders to run into liquidity scares after the cryptocurrency platform froze deposits and withdrawals last week. 

The company first launched in 2017 and quickly established itself as a dominant industry player. Celsius' model offers its customers high yields on crypto deposits (up to 20% APY) by lending these out through various decentralised finance (DeFi) protocols. 

In any case, the practitioner exposes themselves to a great deal of risk in almost every market interaction. Although a centralised provider seemingly offers more accountability, the counterparty risks still pose a genuine danger to capital deposited.

This counterparty risk appeared to manifest from the fine print for Celsius users who had their assets frozen. 

More specifically, there is a valuable lesson here as to why it is so important to read and understand the contractual obligations of all parties when engaging a service provider. 

By signing on to the service, Celsius users agreed to hand over the complete discretion of how the company deployed their funds. Celsius also treated customer deposits like loans to the company, which the platform could use freely and per their terms and conditions. 

The Great Financial Crisis (GFC) of the late 2000s had the infamous collateralised debt obligations (CDOs) that caused one of the worse financial catastrophes in modern history. While not nearly to the same extent, a certain cryptocurrency derivative product might be attributed to the current predicament of Celsius users.

Staked ETH (stETH)

Staked ETH is a product that allows users staking on Lido Finance to access tokens during the 'lock-up' period when their ETH is still inaccessible.

As permitted by their contract, Celsius took their clients' ETH and transferred the assets to Lido Finance for conversion into stETH. This would have allowed the company to generate yields from staking ETH and still be able to fulfil redemption requests from their customers through open market sales of Staked ETH.

However, this created the conditions for a 'perfect storm'.

A liquidity crisis seems to be taking shape with a chronic imbalance between ETH and stETH resulting from sustained capital flight. At current prices, there is an insufficient supply of ETH available to fulfil sell orders on the Staked ETH derivative. 

Chatter of default on ETH redemptions spread like wildfire over the weekend. While it has been reported that Celsius transferred around US$320m worth of digital assets to exchanges for redemption obligations, their efforts were short-lived. The announcement of halting trading and withdrawal services on the platform came soon afterwards.

It remains unclear to the extent to which Celsius can meet its obligations. 

But, what is clear can be extracted using the CEL/USD trading pair, which has fallen over 90% from an all-time high of US$8. 

Celsius Token vs. US Dollar, $CEL - Daily (D1) 

A massive descending channel confirms just how bearish current expectations are and likely will remain until the price can break above established major resistance around US$2.

Q’s Conclusion

Let’s wrap up tonight’s outlook with a view of Bitcoin.

Buyers appear to have successfully defended the .768 Fibonacci retracement level at around US$17,800. 

Bitcoin vs. US Dollar, $BTC - Weekly (W1)

The bulls must now move quickly in recapturing the weekly 200 moving average (BLUE) around US$22.5K, otherwise risk a further sell down back to major support—or lower. 

Typically, large volume spikes have acted as bottom signals in traditional markets. They may now be hinting at one for Bitcoin.

Only time will tell. 

However, it should be expected that the market will continue to test these zones multiple times first to confirm that a genuine price floor has been found. 

Bitcoin vs. US Dollar, $BTC - Weekly (W1)

Patience pays... 

See you again for the next update.

- q

Did you learn something new in tonight’s research feature? Let us know in the comments to help us deliver more quality crypto and blockchain research 🤗

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