Bitcoin eyes record losing streak as ‘stablecoin’ collapse crushes crypto

Bitcoin eyes record losing streak as ‘stablecoin’ collapse crushes crypto

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

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SINGAPORE, May 13 (Reuters) – Cryptocurrencies suffered deep losses on Friday, with bitcoin falling below $30,000 and poised for a record losing streak as the collapse of TerraUSD, a so-called stablecoin, rippled through the markets.

Crypto assets have also been dragged into the massive sell-off of risky investments due to concerns over high inflation and rising interest rates. Sentiment is particularly fragile, however, as tokens believed to be pegged to the dollar have faltered.

Bitcoin, the largest cryptocurrency by total market value, attempted a rebound early in the Asian session and rose 2% to $29,500, something of a recovery from a 16-month low in around $25,400 reached on Thursday.

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It remains well below levels of a week ago around $40,000 and unless there is a rebound in trade over the weekend, it is heading for a record seventh consecutive weekly loss. .

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

“I think there are more downsides in the coming days. I think what we need to see is that open interest is collapsing a lot more, so speculators are really off, and that’s when I think the market will stabilize.”

TerraUSD (USDT) broke its 1:1 peg to the dollar this week as its mechanism to hold stable, using another digital token, failed under selling pressure. It last traded below 10 cents. Read more

Tether, the largest stablecoin and the one whose developers say is backed by dollar assets, also came under pressure and fell as low as 95 cents on Thursday, according to data from CoinMarketCap. Read more

UNSTABLE

The selloff has roughly halved the global cryptocurrency market value since November, but the pullback has turned into a panic in recent sessions with pressure on stablecoins.

They are tokens pegged to the value of traditional assets, often the US dollar, and are the primary means of transferring money between cryptocurrencies or converting balances into fiat cash.

“More than half of all bitcoin and ether traded on exchanges is against a stablecoin, with USDT or Tether taking the largest share,” Morgan Stanley analysts said in a research note.

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

Tether has regained parity with the dollar and its operating company says it has the necessary assets in treasury bills, cash, corporate bonds and other money market products.

But it is likely to face further tests if traders continue to sell, and analysts fear the stress could spill over into currency markets if the pressure increasingly forces a sell-off.

Ether, the second-largest cryptocurrency by market capitalization, stabilized near $2,000 on Friday after falling as low as $1,700 on Thursday. Bitcoin and Ether are around 60% below record highs reached in November.

Crypto-related stocks also surged, with shares of broker Coinbase (COIN.O) stabilizing overnight but still down by half in just over a week.

In Asia, Hong Kong-listed Huobi Technology (1611.HK) and BC Technology Group (0863.HK), which operate crypto trading platforms and other services, saw weekly declines of more than 15%.

Amid the turmoil, Nomura (8604.T) said on Friday it had started offering bitcoin derivatives to its clients, the latest move from a traditional financial institution in the asset class.

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Reporting by Tom Westbrook and Alun John.

Our standards: The Thomson Reuters Trust Principles.

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