FIVE MINUTE FINANCE: ROBINHOOD’S DEFI WALLET WILL PAY YOUR GAS FEES, ESG AWAKENING, MORE

The 5-minute newsletter on the important stuff in finance — explaining what’s going on, and why.

Let’s see what’s going on this week:

• Bitcoin’s Crypto Market Cap Dominance Gets a Boost
• How Big is the Fed’s Maneuvering Field?
• Twitter and ESG: Two Sides of the Same Nexus
• Melvin Capital Shuts Down; Retail Bear Shows Up
• Robinhood to Pioneer a ‘Free’ DeFi Wallet Experience

Bitcoin Reasserts Crypto Dominance

• South Korea Launches Probe After Terra’s Collapse; CEO Summoned (link)
• Bitcoin Dominance at Yearly High as Crypto Market Shrinks to $1.3T (link)

May’s Week of Terra Terror Refreshes Bitcoin’s Dominance

Despite the negative pressure coming out of the Fed’s quantitative tightening (QT), Bitcoin is steadfast within the $30k range. However, during this bear-stagnation period, Bitcoin is reclaiming its dominance. At the end of 2020, Bitcoin made up 70% out of the total market cap of all cryptocurrencies.

This changed abruptly as smart contract platforms, led by Ethereum, started churning out their dApps, creating a $223 billion DeFi market throughout the following year. As a result of a diversified crypto market, in January 2022, Bitcoin’s dominance hit a low mark, representing about 40% crypto’s total market cap. Yet, in the middle of the current bear market, Bitcoin’s dominance sharply climbed up.

Bitcoin dominance chart year-to-date. Image credit: Trading View

This coincided with the week of Terra’s reckoning. The second largest smart contract ecosystem dropped like a rock, losing 99.99% of its value (and wiping out $40 billion in a little over a month). Neither LUNA nor Bitcoin collateral were able to defend UST’s peg, with the LFG ending up selling nearly all of its 80k bitcoins.

Terra’s $40 billion death spiral took a 15–20% bite out of the entire crypto market, but it also reinvigorated faith in the OG digital asset, boosting its dominance. It is now plain to see why one would not want additional layers of complexity in a digital asset.

Following the fallout, we are yet to absorb juicy details as South Korean regulators conduct an official investigation. After all, this once premium crypto project negatively affected at least 200k South Korean investors. In the meantime, Do Kwon, the founder of Terra, is proposing the classic fix — hard forking.

Just as Ethereum hard-forked in 2016 to recover stolen funds, creating Ethereum Classic, Do Kwon is aiming to hard-fork Terra into Terra Classic. The new old tokens would then be called Luna Classic (LUNC), co-existing with the new Terra chain, but without its devastating UST algorithmic stablecoin via anchor protocol.

Whatever happens next, Bitcoin is approaching 50% of the entire crypto market cap. Web3 and smart contract platforms are poised to disrupt existing Web2 platforms, but their fundamental technology is quite a bit more sophisticated than Bitcoin’s ‘simple’ — yet secure and robust — coding practices. It’s safe to expect only more turbulence as Web3 grows, matures, and evolves.