Crypto crash: Tether stablecoin may destroy cryptocurrency for good

It has been a nightmare for investors in cryptocurrencies, with billions being removed from the market in a matter of weeks, but it is about to get much worse.

It has been a nightmare for investors in cryptocurrencies, with billions being removed from the market in a matter of weeks, but it is about to get much worse.

A US financial expert UU. he pointed out one thing that could bring down the entire cryptocurrency market forever, and it could be about to happen.

“Tether is really the soul of the cryptographic ecosystem,” said Hilary Allen, a finance expert at American University. The New York Times. “If it imploded, then the whole facade falls.”

Tether is a so-called stablecoin, a newer type of cryptocurrency that seeks to isolate itself from the extreme volatility of the rest of the cryptocurrency market by keeping prices stable, usually tying them to the price of a traditional currency. In the case of Tether, its value is linked to the value of the US dollar, although it also issues tokens linked to the euro, yuan and gold.

It is the third largest cryptocurrency after bitcoin and ethereum, with a market capitalization of almost $ 83 billion (A $ 119.4 billion).

It was launched as RealCoin in July 2014, renamed Tether that November, and began trading in February of the following year.

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But Tether is now in trouble, facing overburdened pressure from regulators and investors. The New York Attorney General was fined $ 18.5 million (A $ 26.6 million) last year for lying about his financial reserves, and recent falls in the crypto market have possibly shown an idea of ​​what could be to come. .

As prices have fallen in recent weeks, investors have rushed to charge their Tether, forcing the company to shell out $ 10 billion (A $ 14.3 billion). They were able to meet demand, and executives said they overcame the crisis “smoothly,” but experts say the currency may not be so lucky next time.

If Tether collapses, shockwaves could devastate the entire cryptographic sector, which is already in a dire situation.

Cryptographic winter has become a “polar vortex,” a senior executive at one of the world’s largest banks said this week.

Throughout the year, cryptocurrency has been enduring a bear race.

However, last weekend things got worse as investors panicked after the US central bank raised the interest rate by 75 basis points.

Fear of a global recession has multiplied, and cryptocurrency investments have fallen sharply, leading to mass sales and a drastic drop in the price of some of the world’s leading blockchains.

At its lowest level, the number one cryptocurrency, bitcoin, fell to $ 17,601.58 (A $ 25,300) on Sunday morning, although at the time of writing, it has recovered slightly, to around US $ 20,000.

That’s a massive drop if you consider that at the beginning of last month, bitcoin was trading at $ 36,141.33 (A $ 52,000), according to CoinMarketCap.

In fact, its lowest price in recent weeks represents a 74 per cent drop in value since BTC’s all-time high in November, when it nearly reached US $ 69,000 (A $ 99,000) per currency.

In fact, all bitcoin gains in the last two years of the pandemic have been virtually wiped out: BTC has not been as low since October 2020.

Although cryptocurrencies have withstood several winters and price fluctuations, the banking professional says this has been the most extreme given how widely used it is now the blockchain.

Irfan Ahmad of State Street Digital in the Asia Pacific region told the Australian Financial Review: “This is the first time that bitcoin and other cryptocurrencies have gone through such an inflationary environment.

“It’s the fourth cryptographic winter and the most severe given a wider adoption; we refer to it as a polar vortex.”

That said, Mr. Ahmad believes some of the most prominent digital tokens like bitcoin and ethereum will survive the winter.

“But when it comes to an asset class, we think [crypto] he is here to stay, “he told the publication.

“There will be an evolution of players and protocols in the market.”

The cryptocurrency has faced a reckoning in recent weeks, and particularly in recent days, as fears escalate over a global recession amid rampant inflation and rising US central bank interest rates.

The data found that the US inflation rate. UU. It hit a new high of 8.6 percent in May, the worst since 1981.

The U.S. Federal Reserve has raised its interest rate to combat rising inflation by 75 basis points.

The cryptocurrency is very much in line with the traditional stock market and over the last week, markets like Dow Jones have fallen and entered a bearish race.

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