Bitcoin Tumbles, Stablecoin Plunges in Crazy Crypto Week
NEW YORK (AP) — It’s been a wild week in crypto, even by crypto standards.
Bitcoin plummeted, stablecoins were anything but stable, and one of the most prominent companies in the crypto industry lost a third of its market value.
Here is a look at some major developments in cryptocurrencies this week:
The price of bitcoin fell to around $25,420 this week, its lowest level since December 2020, according to CoinDesk. It stabilized around $30,000 on Friday, but that’s still less than half bitcoin’s price hit last November.
Some bitcoin proponents have said the digital currency could protect its holders against inflation and act as a hedge against a stock market decline. Lately, it’s done either. Consumer inflation rose 8.3% in April from a year ago, a level last seen in the early 1980s. interest in trying to reduce inflation, investors are shedding risky assets, including stocks and crypto. The S&P 500 is down more than 15% this year. Bitcoin has fallen around 37% since the start of the year.
Other cryptos have fared equally poorly. Ethereum fell 44% and dogecoin, a cryptocurrency favored by Tesla CEO Elon Musk, lost about half of its value.
Stablecoins have been considered a safe haven among cryptocurrencies. This is because the value of many stablecoins is tied to a government-backed currency, like the US dollar, or precious metals like gold.
But this week, one of the most widely used stablecoins, Terra, experienced the cryptocurrency equivalent of a run for the bank.
Terra is a stablecoin in a cryptocurrency ecosystem known as Terra Luna. Terra is an algorithmic stablecoin, which means its supply is adjusted through complicated buying and selling to maintain its peg at $1. Terra was also powered by an incentive program that offered its holders high returns on their Terra. Luna was the coin meant to be used in the ecosystem to buy and sell assets, and at its peak it was worth over $100.
Even though Terra developers said its algorithms would support the stablecoin, they decided to support it further with bitcoin holdings.
Terra’s troubles began with a combination of withdrawals of hundreds of millions, if not billions of dollars from Anchor, a platform that backed the stablecoin. Combined with general concerns about cryptocurrencies and the drop in the price of bitcoin, Terra began to lose its peg to the dollar. The bitcoin Terra held was also worth less than they paid for, and selling those bitcoins on the market caused bitcoin prices to fall even further.
Efforts by Terra promoters to shore up liquidity have failed. On Friday, Terra had fallen to 12 cents and Luna was trading at less than one ten thousandth of a cent.
Coinbase lost about a third of its value this week, during which the cryptocurrency trading platform reported that monthly active users fell 19% in the first quarter amid falling crypto values.
Investors were running for exits even before Coinbase reported a quarterly loss of $430 million. Shares closed Friday at $67.87. On the day of its IPO just 13 months ago, the shares were at $429 each.
In a letter to shareholders, Coinbase said it believes current market conditions are not permanent and it remains focused on the long term while prioritizing product development. While most Wall Street analysts expect Coinbase to weather the storm, they also warn that increased cryptocurrency regulation could hamper the company’s growth.
There has been a lot of talk about cryptocurrency regulation, but little action.
Treasury Secretary Janet Yellen, responding to volatility in crypto markets this week, said on Thursday that the United States needs a regulatory framework to protect against the risks associated with cryptocurrencies and stablecoins.
In March, Federal Reserve Chairman Jerome Powell said new forms of digital currency such as cryptocurrencies and stablecoins posed risks to the US financial system and would require new rules. to protect consumers. On Monday, just before the Terra implosion, the Fed said in its semi-annual Financial Stability Report that stablecoins were vulnerable to “runs” that could harm the owners of the coins.
Securities and Exchange Commission Chairman Gary Gensler says the crypto industry is “filled with frauds, scams and abuses” and his agency needs more authority from Congress – and more funding – to regulate the market.
Britain unveiled plans to regulate stablecoins part of a larger plan to become a global hub for digital payments. European Union lawmakers have agreed on draft rules for crypto-assets, but still need to negotiate a final invoice.
AP Economics Writer Christopher Rugaber and AP Technology Writer Michael Liedtke contributed.
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