Bitcoin Could Suffer A Record Losing Period As Crypto Impacted By ‘Stablecoin’ Collapse

Bitcoin Could Suffer A Record Losing Period As Crypto Impacted By 'Stablecoin' Collapse
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With the collapse of TerraUSD, a so-called stablecoin, spreading across markets, cryptocurrencies suffered significant losses on Friday, with bitcoin trading near $30,000 and on track for a record losing streak.

Concerns about high inflation and rising interest rates have prompted the widespread dumping of hazardous investments, including crypto assets. The sentiment is shaky, as dollar-pegged tokens have fallen out of favor.

Bitcoin, the most valuable cryptocurrency by market capitalization, rebounded in the Asian session, trading at $30,300 at 0623 GMT, up 5%. After hitting a 16-month low of approximately $25,400 on Thursday, it has made some progress.

However, it is well below week-ago levels of nearly $40,000, and it is on track for a record sixth consecutive weekly loss unless weekend trade improves.

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

“I think there is more downside in the coming days. We need to see the open interest collapse a lot more, so the speculators are really out of it, and that’s when I think the market will stabilize.”

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TerraUSD’s 1:1 peg to the dollar was broken this week, as its method for maintaining stability, which relied on another digital token, failed under selling pressure. It was the last trading around ten cents.

The largest stablecoin and one whose producers claim is backed by dollar assets; Tether has also been under pressure. According to CoinMarketCap data, it plummeted to 95 cents on Thursday but was back to one dollar on Friday.

Since November, selling has approximately half the worldwide market value of cryptocurrencies, but the selloff has turned to panic in recent sessions as stablecoins have been squeezed.

These are tokens tied to the value of traditional assets, most commonly the US dollar, and serve as the primary means of transferring funds between cryptocurrencies or converting balances to fiat cash.

“Over half of all bitcoin and ether traded on exchanges are versus a stablecoin, with USDT or Tether taking the largest share,” analysts at Morgan Stanley said in a research note.

“For these types of stablecoins, the market needs to trust that the issuer holds sufficient liquid assets they would be able to sell in times of market stress.”

Tether‘s running firm claims to have sufficient assets in Treasuries, cash, corporate bonds, and other money-market instruments.

On the other hand, Tether is going to be put to the test if traders continue to sell, and analysts are afraid that the stress could spill over into money markets if more and more liquidation is forced.

After falling as low as $1,700 on Thursday, Ether, the second-largest cryptocurrency by market capitalization, stabilized near $2,000 on Friday. Bitcoin and ether are currently trading at around 60% of their November highs.

Crypto-related stocks have also taken a beating, with shares in broker Coinbase holding stable overnight but still down by half in less than a week.

Huobi Technology and BC Technology Group, both listed in Hong Kong, offer trading platforms and other crypto services and saw weekly declines of more than 17%.

Amid the volatility, Nomura announced that it has begun issuing bitcoin derivatives to clients, marking the latest step into the asset class by a traditional financial institution.

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