Bitcoin price: Panic in the crypto market has Janet Yellen’s attention

What’s happening: As of last Friday, the price of bitcoin had fallen by almost 50% from its all-time high, as traders worried about whether the Federal Reserve’s attempt to fight inflation could bring the economy down in a recession- they dropped riskier investments.

But in recent days, the implosion of TerraUSD, a high-profile cryptographic experiment, has fueled deeper anxiety. On Thursday, Tether, a popular “stable currency” that is considered a safe place for cryptocurrency investors to park their money, broke its link to the U.S. dollar, raising a new alarm. The price of bitcoin has dropped to $ 26,350.

“If we see this going on for several days, then we’ll start to get pretty worried, pretty worried,” Marcus Sotiriou, a cryptographic analyst at GlobalBlock Digital Asset Broker, told me. “The implications are so great. It’s unknown.”

Breaking it down: Making sense of the situation requires a quick introduction to stable currencies and their wilder derivations, algorithmic stable currencies.

Traditional stable currencies like Tether have become the basis of the cryptocurrency market, as they are theoretically fully backed by hard assets. A digital currency can be exchanged at any time for $ 1, which serves as a hedge against volatility. Given the notorious market fluctuations, its use among cryptographic companies, stock exchanges and traders has skyrocketed.

The Federal Reserve estimates that the value of stable currencies “has grown rapidly over the past year,” surpassing $ 180 billion in March.

The boom helped stimulate the rise of algorithmically stable currencies like TerraUSD. These coins are also technically worth $ 1. But they are not backed by hard assets and instead use financial engineering to maintain their bond.

The entire sub-industry has concerned experts, including the Fed. In a report released earlier this month, the central bank said there was little clarity on what really supports stable currencies and noted that some big players dominate a market with little oversight. A loss of confidence, then, could trigger a devastating race, which in turn could build confidence across the digital economy.

It’s not clear what’s going on right now. But as stable currencies are produced, that is the risk.

TerraUSD hesitated for the first time and broke its bond with the US dollar last weekend. It dropped to 23 cents on Wednesday before regaining some ground. It was the last 58-cent quote after its creators announced an emergency intervention.

“This is exactly the‘ death spiral ’that many people have predicted,” Henry Elder, head of decentralized finance at Wave Financial, a digital asset manager, told me.

Tether was below 99 cents per dollar, dragging bitcoin as well. The most popular cryptocurrency, which has been bought by a growing number of traditional investors, has fallen by 10% in the last 24 hours.

Why it matters: This may seem like a lot of weeds. After all, cryptocurrencies continue to be a very small part of the larger financial system. But powerful people like Treasury Secretary Janet Yellen are paying attention, fearing that the situation could lead to unpleasant and unpredictable aftershocks for investors at all levels.

“A stable currency known as TerraUSD has experienced a run and its value has declined,” Yellen said when he testified before the Senate earlier this week. “I think that just illustrates that this is a fast-growing product and that there are risks to financial stability.”

Inflation has slowed, but the pressure on prices will not go away

At first glance, the latest US inflation report seemed to contain some good news.

Last but not least, consumer prices rose by 8.3% year-on-year in April, slightly lower than in March, when inflation rose at the fastest pace in four decades.

But delving into the data, it seemed less reassuring. By eliminating volatile food and energy prices, core inflation rose 0.6% month-on-month, indicating that costs are rising in a wide range of products.

That makes economists and investors nervous.

“Inflation is no longer contained in the supply chain,” said Jefferies chief economist Aneta Markowska.

Companies have been accumulating their inventories, which helps alleviate asset inflation. But prices in the service sector are rising as Americans resume travel and other leisure activities.

“This is the history of inflation to worry about: basic services inflation has risen for four months in a row,” said economist Jason Furman. he tweetedpointing out that services are a much larger input than goods when calculating the Consumer Price Index.

Investor insight: The news scared Wall Street, dropping the S&P 500 by 1.7%. The index is now 18% below its all-time high in January.

Investors were nervous because the inflation reading was worse than expected. Economists consulted by Refinitiv expected annual inflation of 8.1%. That could force the Federal Reserve to continue its aggressive withdrawal of support for the economy for longer, hurting the riskiest bets.

Disney avoided the fate of Netflix. But not all is good news

The question was pursued Disney (DIS) since then Netflix (NFLX) reported its first loss of subscribers in more than a decade: if people are cutting spending, will it also start rescuing Disney +?
For now, that doesn’t seem to be the case. Disney said Wednesday that its flagship streaming service had nearly 8 million subscribers in its last quarter, avoiding Netflix’s bad luck.

“The growth of the platform since its launch reinforces its unique nature,” CEO Bob Chapek said in a call with analysts. “We simply believe that Disney + is unique.”

Hulu and ESPN + also grew in the last quarter. The company’s services now have nearly 206 million users.

Chapek said Disney + is still on track to reach 230 to 260 million subscribers by mid-2024.

That being said, Disney shares initially rose after the report, but are now more than 5% lower in pre-market trading.

A concern? Disney is spending a lot to keep growing. The company’s direct consumer unit lost $ 887 million in the last quarter, more than triple the losses a year ago. Disney blamed “more programming and production costs, marketing and technology.”


Six Flags (SIX), Carpet (TPR) and Utz Brands report results ahead of US markets opening. Poshmark and Wheels Up follow after closing.

Also today: U.S. Producer Price Index for April Releases at 8:30 am ET.

Tomorrow: University of Michigan Consumer Sentiment Survey for May.

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