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Rabat – Crypto markets stabilized slightly on Friday after nearly two weeks of steep drops in value and a difficult week for the concept of “stablecoins.” Popular cryptocurrency Bitcoin hit a $25,400 low on Thursday, reaching a low not seen since December 2020.
Bitcoin, the world’s best known cryptocurrency, has been steadily falling for over six months, despite small rallies after each drop. Bitcoin’s value has dropped by 50.73% over the past six months, which has had a knock-on effect on the entire cryptocurrency market.
Amid a severe Wall Street downturn, cryptocurrencies haven’t fared much better. The volatile but popular blockchain-backed virtual currency market appeared caught up in a sell off of risky investments across markets and fears that bitcoin coil drop further as the PMI Manufacturing Index continues to drop.
“Bitcoin is also GDP-sensitive, because bitcoin falls when the PMI Manufacturing index drops, as we expect (into the third quarter of 2022), indicating that a last, capitulatory bitcoin drop may be still ahead,” Stifel chief equity strategist Barry Bannister told Reuters on Friday.
This week’s sell-off was a blow to the concept of a “stablecoin” within crypto markets.
The idea of a stablecoin revolves around cryptocurrencies that are pegged to real-world currencies, commonly linked to the dollar in some way, in order to introduce a sense of stability in the often volatile crypto market.
One such stablecoin, TerraUSD, has been backed by several significant venture capital firms who invested millions in projects based on the currency. TerraUSD was not truly pegged to the Dollar, as it intended, but instead was linked through algorithms to another cryptocurrency called Luna.
That cryptocurrency collapsed this week, sending TerraUSD spiraling downward.
Within days, TerraUSD became “depegged” from the dollar, falling from a record-high of over $119 in April, to a value of just 13 cents. On Friday, the “Terra UST Powered by Luna” Twitter account mentioned an upcoming “post mortem,” describing recent events as “tremendously difficult times for everyone affected” adding that “the feelings are still raw.”
While the fall of TerraUSD’s value is likely to undermine confidence in stablecoins, Tether, the world’s biggest stablecoin, returned to a $1 value after losing its peg to the dollar briefly, falling to $0.95 this week.
