CRYPTOCURRENCIES extended their sell-off yesterday, with Bitcoin falling to its lowest levels in 16 months as a stampede out of so-called stablecoins sent shock waves around broader markets.
The latest blow to Bitcoin and its smaller rival, Ether, which has shed more than half its market value this year, came from a meltdown this week in TerraUSD, also one of the world’s biggest cryptocurrencies.
Bitcoin dropped to a low of $25 401.05 (R400 534), its lowest level 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 percent this year
From a peak 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, roiling cryptocurrency markets under pressure alongside tumbling stock markets.
“The collapse of the Peg in TerraUSD has had some nasty and predictable spillovers. We have seen broad liquidation in BTC, ETH and most ALT coins,” said Richard Usher, the head of OTC trading at BCB Group, adding that the moves were reminiscent of the bank runs during the 2008 financial crisis.
Stablecoins are digital tokens pegged to the value of traditional assets, such as the US dollar. They are popular in times of turmoil in crypto markets and are often used by traders to move funds around and speculate on other cryptocurrencies.
Yesterday TerraUSD was quoted around 50 cents, according to CoinGecko price data.
Unlike most stablecoins which are backed by reserves, TerraUSD is an algorithmic, or “decentralised”, stablecoin. It was supposed to maintain its peg via a complex mechanism which involved swopping it with another free-floating token.
But even reserve-backed stablecoins, which say they have sufficient assets to maintain their pegs, were showing signs of stress on Thursday.
Major stablecoin Tether slipped below its dollar peg, hitting as low as 98 cents in early morning trade yesterday, 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 is causing an industry-based panic, as Terra is the world’s third-biggest stable coin,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank. But TerraUSD “couldn’t hold its promise to maintain a stable value in terms of US dollars”.
Market players are assessing the fallout of the collapse of TerraUSD to identify whether major companies or investors have been badly hurt. That would be a possible clue to wider contagion.
Ether, the world’s second-largest cryptocurrency, tumbled nearly 15 percent yesterday, to $1700, its lowest since June 2021.
Unlike previous sell-offs in broad financial markets, when cryptocurrencies have been largely untouched, the selling pressure in the assets this time has undermined the broader argument that they are dependable stores of value amid market volatility.
REUTERS