Stablecoin sets for bitcoin record losing streak after TerraUSD breaks

Cryptocurrencies suffered huge losses on Friday, with Bitcoin returning above $ 30,000, and yet the so-called stablecoin, which has dominated the cryptocurrency market, set a record-breaking trend following the fall of TerraUSD.

Wide sales of risky investments have also led to an increase in crypto assets due to concerns over high inflation and rising interest rates. Sentiment is particularly fragile, as tokens are supposed to be pegged to the dollar.

Bitcoin, the largest cryptocurrency in terms of total market value, was able to bounce around the Asia session and traded around $ 30,500 at 1140 GMT. It reached Thursday at around $ 25,400, setting off some recovery from its 16-month low. But it remains well below the previous week’s level of about $ 40,000 and, if not returned to trade over the weekend, is heading for a record seventh weekly loss.

“I don’t think the worst is over,” said Scottie Siu, investment director at Axion Global Asset Management, a Hong Kong-based firm that runs a crypto index fund.

“It simply came to our notice then. I think what we need to see is a much greater decline in open interest, so speculators have really come out of it, and that’s when I think the market will stabilize. “

Crypto-related stocks have taken a pound, with shares of broker Coinbase stabilizing overnight but falling in half in just over a week. In Asia, Hong Kong-listed Huobi Technology and BC Technology Group, which operates trading platforms and other crypto services, lost more than 20% weekly. But larger financial markets have so far seen little knock-on effect from the cryptocurrency crash.

“Crypto is still infinitely smaller than crypto integration into smaller and larger financial markets,” said James Malcolm, head of UBS’s FX strategy. “The idea that what happens in crypto is in crypto – it’s in many ways where we are still at the moment.”

Sales since November have nearly halved the global market value of the cryptocurrency, but the downturn has turned panic in recent sessions with pressure on stablecoin. Stablecoins are traditional asset value tokens, often US dollars, and the main means of transferring money between cryptocurrencies or fiat cash balances.

The fall of Terra USD (UST) has pushed cryptocurrency markets this week, breaking its 1: 1 peg to the dollar. The complex currency stabilization process, which involved balancing with a free-floating cryptocurrency called Luna, stopped working when Luna was under selling pressure. TerraUSD has recently traded around 9 cents, while Luna has sunk near zero.

Tether, the largest stablecoin and whose developers say it is backed by dollar wealth, also came under pressure and fell to 95 cents on Thursday, according to CoinMarketCap data, but returned to $ 1 on Friday. “More than half of all bitcoins and ethers traded on the exchange are stable coins, with USDT or Teether having the most share,” Morgan Stanley analysts said in a research note.

“For this type of stablecoin, the market needs to believe that the issuer has sufficient liquid assets to be able to sell in times of market pressure.”

Tether’s operating company says it has the necessary assets in its treasury, cash, corporate bonds and other money-market products. But Tether could face further testing if traders continue to sell, and analysts worry that the pressure could spread to money markets if the pressure forces further liquidation.

Rating agency Fitch said in a note on Thursday that there could be a “significant negative reaction” to cryptocurrency and digital finance if investors lose confidence in Stablecoin.

“Many regulated financial entities have increased their exposure to cryptocurrency, defi and other types of digital finance in recent months, and some fee-rate providers could be affected if the volatility of the crypto market becomes severe,” it said. However, Fitch said that weak links between the crypto market and the regulated financial market would limit the possibility of crypto market volatility leading to widespread financial instability.