Market Wrap: Cryptos Extend Losses as LUNA Plunges

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It was a sea of red in crypto markets on Wednesday as stablecoin woes kept some traders on edge.

Terra's LUNA token plunged for the third consecutive day, declining by as much as 96% over the past 24 hours. LUNA was meant to be a buffer against volatility for the stablecoin TerraUSD (UST), but it has succumbed to extreme selling pressure. The Luna Foundation Guard moved the entirety of its reserves to bitcoin exchanges to defend its UST stablecoin’s 1:1 dollar peg on Wednesday.

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Further, the European Commission is considering a ban on large-scale stablecoins, which have become widely used in place of fiat currency, according to a document seen by CoinDesk.

Bitcoin (BTC) declined by as much as 6% over the past 24 hours, compared with a 9% decline in ether (ETH) and a 30% decline in Solana's SOL token. Bitcoin is outperforming most alternative cryptos (altcoins), which typically occurs in a down market because of its lower risk profile relative to smaller tokens.

Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.

Bitcoin's trading volume has ticked higher over the past few days, albeit by less than in previous spikes. That could be an initial sign of capitulation as BTC stabilizes at about $30,000.

"The volume surge is especially interesting considering the dwindling spot volumes we have seen during the latest month, as April saw the lowest bitcoin spot volumes since last summer," Arcane Research wrote in a report earlier this week. "The recent uptick in volatility seems to have woken up traders."

Volatility returns

BTC's front-month implied volatility also spiked to its highest level since March. Traders are expecting greater price swings over the short term, although volatility spikes tend to be short-lived.

QCP Capital, a Singapore-based crypto trading firm, noted large amounts of put demand from its option trading desk this week, which pushed BTC and ETH risk reversals (calls minus puts) even more negative from -8% to -15%. QCP expects more volatility over the short term.

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