Bitcoin’s 2021 gains wiped out by stablecoin rout

HONG KONG, May 12 (Reuters) – Cryptocurrencies extended their selloff on Thursday, with Bitcoin falling to its lowest level in 16 months as a rush into so-called stablecoins sent shockwaves through markets. wider.

The latest blow to Bitcoin and its smaller rival Ether, which has lost more than half of its market value so far this year, came from a collapse this week of TerraUSD, also one of the biggest cryptos. -currencies in the world.

Bitcoin fell to a low of $25,401.05, its lowest level since December 28, 2020. Over the past eight sessions, it has lost a third of its value, or $13,000, and fallen more 45% so far this year read more

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From a high of $69,000 in November 2021, it has lost nearly two-thirds of its value.

TerraUSD, also known as “UST,” slipped below its 1:1 peg to the dollar this week, rattling already under pressure cryptocurrency markets alongside falling stock markets. Read more

“The Peg collapse in TerraUSD had unpleasant and predictable fallout. We saw a large sell-off in BTC, ETH and most ALT coins,” said Richard Usher, head of OTC trading at BCB Group, adding that the movements recall the bank operated during the 2008 financial crisis.

Stablecoins are digital tokens pegged to the value of traditional assets, such as the US dollar. They are popular during turbulent times in the crypto markets and are often used by traders to move funds and speculate on other cryptocurrencies.

On Thursday, TerraUSD was trading at around 50 cents, according to price data from CoinGecko.

A representation of the Bitcoin cryptocurrency is seen in this illustration taken August 6, 2021. REUTERS/Dado Ruvic

Unlike most stablecoins that are backed by reserves, TerraUSD is an algorithmic or “decentralized” stablecoin. It was supposed to maintain its peg through a complex mechanism that involved swapping it with another floating token.

But even reserve-backed stablecoins, which say they have enough assets to hold their pegs, were showing signs of strain on Thursday.

Leading stablecoin Tether slipped below its dollar peg, hitting 98 cents around 07:32 GMT on Thursday, according to CoinGecko. USD Coin was trading at around $1.04 while Binance USD was at $1.07 – a significant breakout from its usual range.

“The Terra incident is causing panic in the industry, as Terra is the third largest stablecoin in the world,” said Ipek Ozkardeskaya, principal analyst at Swissquote Bank. But TerraUSD “could not deliver on its promise to maintain a stable value in US dollar terms.”

Market participants are still gauging the fallout from TerraUSD’s collapse to determine whether large companies or investors have been badly affected. This would be a possible clue to a wider contagion.

Ether, the world’s second-largest cryptocurrency, fell nearly 15% on Thursday to $1,700, its lowest since June 2021.

Unlike previous selloffs in major financial markets, when cryptocurrencies were largely untouched, the selling pressure on these assets this time undermined the larger argument that they are reliable stores of value in a context. market volatility.

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Reporting by Alun John and Elizabeth Howcroft in London; Additional reporting by Samuel Indyk; Written by Saikat Chatterjee; Editing by Clarence Fernandez, Bradley Perrett and Kim Coghill

Our standards: The Thomson Reuters Trust Principles.

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