Bitcoin Price Rebounds After Fall Below $26,000


Bitcoin fell, then recovered, and the world’s largest stable currency, Tether, fell briefly from its $ 1 pair, adding to fears of further turmoil in the cryptocurrency market.

Cryptocurrencies were hit by two forces this week. On the one hand, the concern that inflation requires an aggressive tightening of the central bank has undermined the desire to maintain assets perceived as being more risky. On the other hand, the disengagement of TerraUSD, a stable currency valued at $ 1, sent waves through digital assets.

According to CoinDesk, Bitcoin fell to $ 25,402.04 on Thursday, 10% from its 17.00 level on Wednesday, its lowest level since December 2020. Bitcoin had fallen in the last seven consecutive days until Wednesday, its longest losing streak since March 2020, according to Dow Jones Market Data. Ether also fell 4.8% from Wednesday night to trading at $ 1,933.85 on Thursday, its lowest level since July 2021.

Cryptocurrencies have come under pressure in recent days alongside stock markets. Digital assets are moving more and more as stocks move as traditional money managers, such as hedge funds and family offices, have entered the space over the past two years, analysts say. Such funds may be more likely to sell cryptocurrencies during periods of volatility rather than hold them.

Shares faltered on Wednesday as inflation turned out to be more sticky than economists had anticipated, raising concerns about how much the Federal Reserve may have to further tighten financial conditions to curb inflation. Investors are worried that aggressive interest rate hikes could weigh on growth, as is concern over Covid-19 blockades in some Chinese cities and the war in Ukraine.

Crypto was also affected by a decoupling from what was previously the third most stable currency in market value. Considered the least volatile part of the cryptographic universe, these assets are tied to the value of government-issued coins. Stablecoin TerraUSD has broken away from its $ 1 pair in recent days, reaching 61 cents at 8:20 a.m. ET on Thursday.

His sister card, Luna, was quoted at 3 cents, 99% less than the previous 24 hours. The fall places its value below that of the jokingly cryptographic dogecoin, which was trading at about 8 cents at a time.

Bitcoin fell to $ 25,402.04 on Thursday.


Photo:

Umit Turhan Coskun / Zuma Press

Although the most popular stablecoins maintain their levels with assets that include dollar-denominated debt and money, TerraUSD is what is known as algorithmic stablecoin, which relies on financial engineering to maintain its connection to the dollar.

In the past, TerraUSD has maintained its $ 1 price relying on traders who have acted as its support. When it fell below the peg, traders would burn the stablecoin, removing it from circulation, exchanging TerraUSD for $ 1 in new Luna units. That stock reduced TerraUSD’s bid and raised its price.

Conversely, when the value of TerraUSD rose above $ 1, traders could burn Luna and create a new TerraUSD, increasing the supply of the stable currency and lowering its price to $ 1.

This system has stopped stabilizing the cryptocurrency after a series of major withdrawals of TerraUSD from Anchor Protocol, a kind of decentralized bank for cryptocurrency investments. At the same time, TerraUSD was also sold for other stable currencies through various liquidity groups that contribute to the stability of the peg. The sudden rush to sell scared some traders, who intensified the defeat.

Markets have seemed increasingly unstable recently: stocks, bonds and cryptocurrencies have been falling as investors struggle to cope with the large fluctuations affecting financial markets around the world. Caitlin McCabe of WSJ discusses some of the causes behind the recent market frenzy. Photo: Spencer Platt / Getty Images

The break in TerraUSD has also caused concern that other stable currencies may break with their typical levels. Tether, the largest stablecoin at market value, dropped to 96 cents at around 3:15 am ET before bouncing to 99.3 cents at 8:20 am, according to CoinDesk data. Some hedge funds have stepped up bets that the tether could break its $ 1 level in recent days, investors say.

Regulators have in the past examined stablecoin, which parent company Tether Holdings Ltd. it says it is backed by cash reserves or other financial instruments, for being too opaque.

It took a one-year investigation by the New York Attorney General and a possible $ 18.5 million settlement of allegations that Tether tricked customers into revealing what Tether has in general terms each quarter through his signature. of accounting. Those holdings consisted of investments such as cash and short-term U.S. government securities, but also short-term IOUs known as commercial paper.

Tether did not disclose which companies hold the shares in commercial paper, which has caused investors to worry about the quality and stability of those companies. Tether previously said he has consciously reduced his holdings in commercial paper since his agreement with the New York Attorney General.

“Tether is the most liquid stable currency on the market and is 100% backed by a strong, conservative and liquid reserve portfolio. company continued to process bailouts normally amid the current liquidation of the cryptocurrency.

Treasury Secretary Janet Yellen on Tuesday reiterated calls for Congress to authorize the regulation of so-called stable currencies.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com

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