Crypto World Stabilizes, Bitcoin Rally After Stable Coins Slip

  • Bitcoin Reaches Intraday High Above $30K
  • TerraUSD crash rocks the crypto market
  • Analysts say the impact on traditional markets is limited

HONG KONG/LONDON/NEW YORK, May 13 (Reuters) – Cryptocurrencies were flat on Friday, with bitcoin rebounding from a 16-month low after a volatile week dominated by the collapse of the value of TerraUSD, the so-called stablecoin.

Crypto assets have been swept up in a massive sell-off of risky investments amid fears of rising inflation and rising interest rates. But the broader financial markets have so far seen little to no detrimental impact from the cryptocurrency crash.

“Cryptocurrencies are still small, and the integration of cryptocurrency into the broader financial markets is still very small,” said James Malcolm, Head of FX Strategy at UBS.

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Weak links to regulated financial markets will limit the potential for cryptocurrency market volatility to cause broader financial instability, rating agency Fitch said in a note Thursday.

Bitcoin, the largest cryptocurrency by market capitalization, rose 3.5% to $29,884, rebounding from its December 2020 low of $25,400 hit on Thursday.

But despite hitting a high of just under $31,000 on Friday, bitcoin is still well below the previous week’s levels of around $40,000, and unless there is a big rally at the end of the week, it is on track for its seventh weekly loss on the day. straight.

Barry Bannister, chief equity strategist at Stifel, said that Bitcoin is still suffering from a further drop to around $15,000.

He added: “Bitcoin is also sensitive to GDP, because when the manufacturing PMI falls, as we expect (in Q3 2022), Bitcoin falls when the manufacturing PMI declines, which indicates that the last bitcoin investment decline may still be in the future.” .

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Ether, the second-largest cryptocurrency by market capitalization, also gained, jumping 5.8% to $2,068.

Tether, the largest stablecoin that its developers say is backed by dollar assets, is back at $1 after falling to 95 cents on Thursday. Read more

However, the supposedly dollar-pegged stablecoin TerraUSD continued to weaken at 11 cents, according to data tracker CoinGecko. It has been unpegged to the US currency since May 9.

Representations of the virtual currencies Ripple, Bitcoin, Etherum, and Litecoin appear on a PC motherboard in this illustration, February 14, 2018. REUTERS / Dado Ruvic / Illustration

CoinGecko data showed that the total market capitalization of the crypto sector rose 5.6% to $1.4 trillion on Friday.

Beyond Bitcoin

Cryptocurrency-related stocks were hit hard with the market crash, but on Friday, broker Coinbase (COIN.O) It rose 23% to $72.12, although it was still down 30% for the week.

In Asia, Huobi Technology listed in Hong Kong (1611.HK) and BC Technology Group (0863.HK)which operates trading platforms and other crypto services, saw a weekly decline of more than 20%.

The sell-off has nearly halved the global market cap of cryptocurrencies since November, but the pullback has turned into panic in recent sessions as the stablecoins weighed.

Stablecoins are tokens tied to the value of traditional assets, often US dollars, and are the primary means of moving funds between cryptocurrencies or for converting balances into fiat money. Read more

Cryptocurrency markets have been shaken this week by the crash of TerraUSD (UST), which broke its peg to the dollar in a 1:1 ratio.

The currency’s complex stabilization mechanism, which involved balancing with a free-floating cryptocurrency called Luna, stopped working when Luna dropped close to zero. Read more

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“For these types of stablecoins, the market needs to trust that the issuer has sufficient liquid assets that it can sell in times of market stress,” analysts at Morgan Stanley said in a research note.

The operator of another stablecoin called Tether said it holds the necessary assets in Treasuries, cash, corporate bonds and other money market products.

But stablecoins are likely to face further tests if traders continue to sell, and analysts fear that the tension could spill over into financial markets if there is more liquidation.

Fitch said cryptocurrency and digital finance could face “significant negative repercussions” if investors lose faith in stablecoins, as many regulated financial entities have increased their exposure to the sector in recent months.

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Additional reporting by Tom Westbrook in Singapore, Elon John in Hong Kong, Elizabeth Hoecroft in London and Gertrude Chavez-Dreyfus in New York; Editing by Bradley Perrett and Emilia Sithole Mataris

Our criteria: Thomson Reuters Trust Principles.

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