Dramatic fall in the value of TerraUSD, one of the largest stablecoins in the world sent shockwaves through cryptocurrency markets on Thursday. The movement pushed Tether (another major stablecoin) below dollar. This also sent bitcoin to 16-month lows.
Cryptocurrencies have been swept up in a sell-off in risk assets, which has picked up steam this week as data showed U.S. inflation running hot, deepening investor fears about the economic impact of aggressive central bank tightening.
The sell-off has meant that combined market value of cryptocurrencies is USD 1.2 trillion. This is less that half of the value cryptocurrencies had last November as per data from CoinMarketCap.
Tether, a reserve-backed stablecoin which is supposed to be pegged 1:1 to the U.S. dollar, dropped to as low as 95 cents earlier in the global session, according to CoinMarketCap price data. It was last at 99 cents.
Despite the volatility, US Treasury Secretary Janet Yellen said stablecoins like Tether and TerraUSD do not yet pose a systemic risk to the financial system.
“I wouldn’t characterize it at this scale as a real threat to financial stability, but they’re growing very rapidly and they present the same kind of risks we have known for centuries in connection to bank runs,” she said during a House Financial Services Committee hearing.
On Thursday, bitcoin, the largest cryptocurrency hit a low of USD 25,401.05. This is its lowest value since December 28, 2020.
In the past eight sessions, it has lost more than a quarter of its value, or around $10,700, and is down 37% so far this year, trading far below the peak of $69,000 it hit in November 2021.
Bitcoin’s correlation with the Nasdaq composite has been on the rise recently and is now up near its all time highest level, based on Refinitiv data. The Nasdaq composite has tumbled around 8% so far this month.
Ether, the world’s second-largest cryptocurrency, fell to its lowest since June 2021, sinking as low as $1,700.
(With inputs from agencies)
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