Cryptocurrencies took big losses on Friday, with bitcoin again exceeding $ 30,000 and yet they were set for a record series of losses after the collapse of TerraUSD, the so-called stable coin, shook the cryptocurrency markets.
Crypto assets have also been swept away by high-risk investments due to concerns about high inflation and rising interest rates. Moods are particularly fragile as tokens, which are believed to be pegged to the dollar, have shaken.
Bitcoin, the largest cryptocurrency by total market value, managed to bounce back in the Asian session and traded around $ 30,500 at 11:40 GMT. He began something like a recovery from a 16-month low of about $ 25,400, reached on Thursday.
But it remains well below the previous week’s level of about $ 40,000 and, unless there is a resumption of weekend trading, is heading for a record seventh consecutive weekly loss.
“I don’t think the worst is over,” said Scotty Siou, investment director at Axion Global Asset Management, a Hong Kong-based company that manages a crypto index fund.
“I think there are more disadvantages in the coming days. I think what we need to see is that the open interest is collapsing a lot more, so the speculators are really out of it, and then I think the market is going to stabilize. “
Beyond bitcoin
Shares in cryptocurrency rose, as shares of broker Coinbase COIN.O stabilized overnight, but still fell by half in just over a week.
In Asia, Hong Kong-based Huobi Technology 1611.HK and BC Technology Group 0863.HK, which operate trading platforms and other crypto services, expect weekly declines of more than 20 percent.
But broader financial markets have so far seen little effect from the collapse of the cryptocurrency.
“Crypto is still small and crypto integration within the broader financial markets is still infinitesimally small,” said James Malcolm, head of UX’s FX strategy.
“The idea that what happens in cryptocurrency stays in cryptocurrency is, in many ways, where we are now.”
Squeezing stables
Sales have halved the global market value of cryptocurrencies since November, but the decline has panicked in recent sessions under pressure from stablecoins.
Stablecoins are tokens tied to the value of traditional assets, often the US dollar, and are the main medium for moving money between cryptocurrencies or converting balances into fiat money.
Cryptocurrency markets were rocked this week by the collapse of TerraUSD (UST), which broke its 1: 1 commitment to the dollar.
The sophisticated stability mechanism of the coin, which involved balancing with a free-floating cryptocurrency called Luna, stopped working when Luna was put under pressure to sell. TerraUSD last traded around 9 cents, while Luna fell close to zero.
Tether, the largest stablecoin and one whose developers say it is backed by dollar assets, was also under pressure and fell to 95 cents on Thursday, according to CoinMarketCap, but returned to $ 1 on Friday.
“More than half of all bitcoins and ethers traded are against stable coins, with USDT or Tether accounting for the largest share,” analysts at Morgan Stanley said in a research note.
“For these types of stable coins, the market must believe that the issuer has sufficient liquid assets that it could sell during market stress.
Tether’s operating company says it has the necessary assets in government securities, cash, corporate bonds and other money market products.
But Tether is likely to face further tests if retailers continue to sell, and analysts are worried that stress could spill over into money markets if the pressure forces more and more liquidation.
The rating agency Fitch said in a note on Thursday that there could be “significant negative effects” on cryptocurrencies and digital finance if investors lose confidence in sound coins.
“Many regulated financial entities have increased their exposure to cryptocurrencies, defi and other forms of digital financing in recent months, and some Fitch-rated issuers could be affected if cryptocurrency volatility becomes heavy,” it said.
However, Fitch said weak links between crypto markets and regulated financial markets would limit the potential for cryptocurrency volatility to cause greater financial instability.
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