OKX Research: UST Incident Deals a Heavy Blow to Crypto, But Fed Rate Hike Decision May Have Even Bigger Impact

Author: OKX Research Analyst Zhao Wei

Editor: OKX Beginner Academy Edward

May 2022 was a bloodbath for the crypto market. While global financial markets were closely watching the Federal Reserve's policy moves, the crypto space was the first to face a major blow —

The algorithmic stablecoin UST crashed, and its project operator Luna (whose total market cap once ranked in the top five in the industry) met its premature end, bringing unimaginable ripple effects: Bitcoin prices plummeted, most coins on the market fell across the board, panic spread, and the consensus that "the market has clearly turned bearish" has almost become universal.

The aftermath of this event may exceed expectations even further.

1. UST Crash Triggers Chain Reaction, Market Confidence Severely Shaken

The most immediate impact is that the seigniorage-style algorithmic stablecoin sector may become abandoned by the industry. In fact, ever since algorithmic stablecoins were born, the market has been aware of their inherent risk of a death spiral. It was only UST's sudden implosion that made the entire industry abruptly realize this, though the extent of its impact and the breadth of its destruction were truly unexpected. Naturally, users accelerated their exodus.

The negative impact of UST will certainly draw regulators' attention. Last week, U.S. Treasury Secretary Yellen already called for stablecoin regulation in Congress. It can be expected that sanctions targeting stablecoins may arrive swiftly, and they will be more punitive than before, causing market sentiment to fall into a slump. The Crypto Fear & Greed Index (CFGI) has dropped to its lowest point in nearly two years, nearly matching the levels seen before the 2019 pandemic outbreak.

CFGI trend over the past two years Source: Coinglass

Institutions are equally pessimistic about the subsequent market impact. On May 13, Citibank released a report stating that due to UST's crash, Bitcoin is expected to remain highly volatile for some time, with multiple factors including intensified regulation and panic sentiment adding to the volatility.

Total crypto market cap trend Source: Citibank

The report also stated that Bitcoin's current price has fallen to near its production cost and the valuation implied by spot adoption models.

2. U.S. Stocks May See Major Correction, Actually Playing a Key Role in This Decline

After the crypto space was devastated by the UST crash, massive fund net outflows caused Bitcoin prices to linger around $29,000 this week. According to statistics, compared to the peak of this bull run, the total crypto market cap has already shed $1.7 trillion.

In Citibank's report this week, it noted that the plunge caused by this "black swan" event was essentially inevitable given the weakness in risk assets, with偶然因素 merely catalyzing this outcome. This further illustrates that Bitcoin's correlation with U.S. stocks has strengthened, especially in downturn scenarios.

Institutions' forecasts for the broader financial outlook are equally grim. Goldman Sachs recently publicly warned that "businesses and consumers should prepare for an economic recession," and has already lowered its year-end 2022 target for the S&P 500 from 4,700 to 4,300 points.

Goldman Sachs's equity strategy team further explained: "If a recession occurs, it would push the S&P index down to 3,600 points." Not long ago, Goldman Sachs publicly predicted a 35% probability of U.S. economic recession by the end of 2022.

3. What May Truly Determine Crypto's Next Move Could Be the Fed's Monetary Policy

The U.S. April Consumer Price Index (CPI) rose 8.3% year-over-year, with growth slowing for the first time since August 2021, but still remaining at elevated levels, demonstrating that U.S. inflation remains dire. According to previous analysis by OKX Research, rate hikes and quantitative tightening have always been the Fed's go-to options for combating high inflation, and the impact on the crypto space would be nothing short of drawing water from under a cauldron.

Fed Chairman Powell reiterated his stance on combating inflation last week, hinting at expectations for another 50 basis point rate hike at the June meeting. From a news perspective alone, this has already constituted a certain bearish effect — whether the market can digest it in advance before the decision is finalized remains uncertain.

The Fed's next rate hike moves have drawn attention from global media and financial circles

Multiple signs indicate that the decline in the crypto market has far exceeded that of traditional finance, and before adverse news arrived, it had already short-term bearish ahead of the latter, practically launching an independent decline. As the external financial environment tightens, users' speculative costs in the crypto space have also risen significantly, and the acceleration of exits is irreversible in the short term.

Risk is always accompanied by opportunity, and this mutually coexisting relationship is more reflected in the time cycle of investment.

As is well known, over the past decade-plus since Bitcoin's birth, it has experienced numerous peaks and troughs. But what remains consistent is that each time it has crossed a valley, Bitcoin's total market cap has climbed to new heights. Truly seasoned investors need to possess the qualities of prudence, decisiveness, and patience to navigate through bull and bear cycles and win in the end.

Disclaimer

This article may contain product-related content not applicable to your region. This article is only intended to provide general information and does not responsible for any factual errors or omissions. This article represents only the author's personal views and does not constitute the views of OKX. This article does not intend to provide any advice, including but not limited to: (i) investment advice or investment recommendations; (ii) offers or solicitations to buy, sell, or hold digital assets; or (iii) financial, accounting, legal, or tax advice. Holding digital assets (including stablecoins) involves high risk and may experience significant volatility or even become worthless. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. For questions specific to your circumstances, please consult your legal/tax/investment professional. The information contained in this article (including market data and statistics, if any) is for general reference purposes only. Although we have taken all reasonable precautions in preparing this data and these charts, we do not assume any responsibility for any factual errors or omissions expressed herein. © 2025 OKX. This article may be reproduced or distributed in its entirety, and excerpts of 100 words or less may be used, provided that such use is non-commercial. Any reproduction or distribution of the full article must prominently state: "This article is copyrighted © 2025 OKX, used by permission." Permitted excerpts must cite the article title and include attribution, e.g., "Article title, [author name (if applicable)], © 2025 OKX." Some content may have been generated or assisted by artificial intelligence (AI) tools. Derivative works and other uses of this article are not permitted.

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