Bitcoin 2021 gains wiped out in steady defeat
HONG KONG (Reuters) – Cryptocurrencies extended their sell-off on Thursday, with bitcoin dropping to 16-month lows, as a scramble of so-called stablecoins sent shock waves around the broader markets.
The latest blow to Bitcoin and its smaller rival Ether, which has lost more than half its market value so far this year, came from this week’s crash in TerraUSD, also one of the world’s largest cryptocurrencies.
Bitcoin dropped to as low as $2,5401.05, its lowest since December 28, 2020. In the past eight sessions, it has lost a third of its value, or $13,000, and is down more than 45% so far this year. read more
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From its peak of $69,000 in November 2021, it has lost nearly two-thirds of its value.
TerraUSD, also known as ‘UST’, fell below the 1:1 peg to the dollar this week, upsetting crypto markets already under pressure along with tumbling stock markets. Read more
“The collapse of the wedge in TerraUSD has had some pretty bad and predictable ramifications. We have seen massive liquidations in BTC, ETH and most ALTs,” said Richard Asher, head of OTC trading at BCB Group, adding that the moves are reminiscent of the bank’s run during the 2008 financial crisis. .
Stablecoins are digital tokens that are tied to the value of a traditional asset, such as the US dollar. It is popular in times of turmoil in the cryptocurrency markets and traders often use it to move funds and speculate on other cryptocurrencies.
On Thursday, TerraUSD price moved around 50 cents, according to CoinGecko’s price data.
Unlike most of the stablecoins backed by reserves, TerraUSD is an algorithmic or “decentralized” stablecoin. It was supposed to keep it linked through a complex mechanism that included swapping it for another free-floating token.
But even reserve-backed stablecoins, which say they have enough assets to maintain their peg to the dollar, showed signs of stress on Thursday.
Major stablecoin Tether slipped below its dollar peg, reaching 98 cents at around 0732 GMT Thursday, according to CoinGecko. USD Coin was trading at around $1.04 while Binance USD was at $1.07 – a significant breakout of its usual range.
“The Terra incident has caused panic in the industry, as Terra is the third largest stablecoin in the world,” said Ipek Ozkardskaya, chief analyst at Swissquote Bank. But TerraUSD “has not been able to deliver on its promise to maintain a stable value in US dollar terms.”
Market players are still assessing the fallout from the TerraUSD crash to determine whether major companies or investors have been hit hard. This would be possible evidence of a wider spread of infection.
Ether, the world’s second largest cryptocurrency, fell about 15% on Thursday to $1,700, its lowest level since June 2021.
In contrast to previous sell-offs in broad financial markets, when cryptocurrencies were largely untouched, selling pressure in these assets this time around has undermined the broader argument that they are stores of reliable value amid market volatility.
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Additional reporting by Alon John and Elizabeth Hawcroft in London; Additional reporting by Samuel Indyk. Written by Saikat Chatterjee; Editing by Clarence Fernandez, Bradley Perrett and Kim Coogill
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