The crypto collapse worsens with the fall of Tether under parity with the dollar


The collapse of TerraUSD, one of the biggest cryptocurrencies stablecoins rocked cryptocurrency markets on Thursday, pushing its peer Tether below parity with the dollar and pushing bitcoin to 16-month lows.

Cryptocurrencies have been dragged down by a sell-off in riskier assets, which has gathered steam this week after data showed US inflation remains high, raising fears among investors. investors to the economic impact of an aggressive tightening of monetary policy by central banks.

The sale has brought the combined market value of all cryptocurrencies to $1.2 trillion, less than half that of November, according to data from CoinMarketCap.

The bitcointhe largest cryptocurrency by market cap, hit a low of $25,401.05 on Thursday, its lowest level since Dec. 28, 2020, before paring the decline to 2.1% at $28,400.

In the past eight sessions, it has lost nearly a quarter of its value, or about $10,700, and is down more than 37% year-to-date. Bitcoin is also down nearly two-thirds from its high of $69,000 in November 2021.

The correlation of bitcoin with the Nasdaq Composite it has risen recently and is now near its all-time high, according to Refinitiv data. The Nasdaq has plunged about 8% so far this month.

The etherthe world’s second-largest cryptocurrency, fell as much as 15% on Thursday to a low of $1,700.

Unlike previous financial market crashes, in which cryptocurrencies remained largely untouched, the selling pressure on these assets this time around has undermined the argument that they are reliable stores of value amid market volatility.

Not so stable cryptocurrencies

The stable cryptocurrency TerraUSD was hit by the turbulence and broke its peg against the dollar, falling as low as 31 cents on Wednesday. On Thursday she was trading around 47 cents.

Stablecoins are digital “tokens” pegged to the value of traditional assets, such as the dollar. However, TerraUSD is an algorithmic, or “decentralized,” stablecoin and was supposed to maintain its peg to the dollar through a complex mechanism that involved exchanging it with another free-floating “token.”

“TerraUSD parity collapse has had some nasty and predictable effects. We have seen a wide sell-off in BTC, ETH and most currencies ALTsaid Richard Usher of BCB Group, referring to other cryptocurrencies.

Even stablecoins backed by traditional assets showed signs of strain on Thursday.

Tether It fell below its 1:1 parity with the dollar, hitting a low of 95 cents, according to data from CoinMarketCap.

“The lack of transparency provided by Tether on the quality of commercial paper they hold to support the peg made it the obvious next target,” Usher said.

“However, Tether is a very different animal to Terra, with a more proven ecosystem and I am much more confident that when the volatility subsides it will be able to regain its parity and stability,” he added.

Paolo Ardoino, chief technology officer at Tether, said in a Twitter Spaces chat that the stablecoin reduced its exposure to commercial paper over the past six months and now holds most of its reserves in US treasury bonds.

Ardoino said that a quarterly update on Tether reserves would be available by the end of the month.

Tether is the largest stablecoin by market cap and along with USD Coin and BinanceUSD they account for nearly 87% of the total $169.5 billion stablecoin market, according to CoinMarketCap.

The large number of centralized cryptocurrency exchanges and decentralized hubs, each with its own liquidity and credit risk profile, is contributing to price distortions across the market, said Denis Vinokourov, director of research at Corinthian Digital Asset Management.

“Spillover effects to other stablecoins are partly due to the fragmented nature of the market,” Vinokourov said. “This credit risk, especially in times of tight liquidity conditions and massive deleveraging, leads to further price distortions.”

Market players continue to assess the impact of TerraUSD’s troubles on investors.

In its bi-annual Financial Stability Report on Tuesday, the Federal Reserve warned that stablecoins are vulnerable to investor runs because they are backed by assets that may lose value or become illiquid in times of market stress.

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