Crypto-crisis 

Stablecoins affected as much as bitcoin

Key points

  • According to AscendEx venture associate Michael Rinko, “the crypto market has been under pressure for quite some time.” “Equities and cryptocurrency have plummeted as the Federal Reserve increases interest rates. As a result of this, the market is destabilized.”
  • According to Coin Metrics, the price of bitcoin was last down 7% at $29,135.00. 
  • Investors are also digesting news from the Terra project, whose wildly popular stable coin TerraUSD dropped over 100% last week, breaching its $1 peg.

After new inflation statistics showed consumer prices remain at 40-year highs, bitcoin fell below $30,000 for the second time this week.

According to Coin Metrics, the price of bitcoin was last down 7% at $29,135.00. 

It had fallen as low as $29,026.66 earlier in the day, its lowest level since December 2020. Ether dropped 10% to $2,104.15.

Cryptocurrencies plummeted along with stocks after the Bureau of Labor Statistics revealed that consumer prices rose 8.3% in April, slightly higher than economists polled by Dow Jones expected.

This fluctuation alarmed investors globally, prompting them to sell high-risk assets such as cryptocurrency. 

The S&amp 500 and, more lately, the Nasdaq Composite remains highly associated with cryptocurrencies.

AscendEx venture associate Michael Rinko stated, “The crypto market has been under pressure for quite some time.” “Equities and cryptocurrency have slumped as the Federal Reserve continues to boost interest rates. The market has been agitated as a result of this.”

For the second time this week, bitcoin has fallen below $29,000. Analysts have identified $30,000 as a significant level for the largest cryptocurrency by market capitalization, warning that if it fails to hold that level, it will continue to see a downward trend.

Bitcoin reached a recent high of $40,000 at this time last week, but it quickly reversed the next day and has consistently dropped.

Investors are also digesting news from the Terra project, whose wildly popular stable coin TerraUSD dropped over 100% last week, breaching its $1 peg. The algorithmic, decentralized stablecoin will be backed by a mix of digital assets, including bitcoin.

Stablecoins are digital tokens tied to traditional assets such as the US dollar. However, TerraUSD is an algorithmic, or “decentralized,” stablecoin that was supposed to keep its dollar peg by a convoluted method that entailed swapping it with another free-floating currency.

“The collapse of the TerraUSD peg has had some severe and anticipated ramifications. We have seen widespread liquidation in BTC, ETH, and the majority of ALT coins “referring to other cryptocurrencies, said Richard Usher, head of OTC trading at BCB Group. The impact of TerraUSD’s problems on investors is under investigation by market participants.

The US Federal Reserve warned on Tuesday in its biannual Financial Stability Report that stablecoins are vulnerable to investor runs because they are backed by assets that can lose value or become illiquid during market stress.

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