- Bitcoin and other alternative coins rebound as stocks fall
- Secretary Yellen states that Terra’s problems aren’t a greater risk
The demise of the stable coin TerraUSD caused a lot of panic in the crypto world. However, 24 hours later the situation has calmed considerably.
Terraform Labs halted and restarted after which it stopped again the Terra blockchain following the aftermath of the demise of TerraUSD and the Luna token. The developers who work on the blockchain stated in an update to the verified account on Twitter it was the case that their second stoppage was aimed at allowing the company to “come up with a plan to reconstitute” the network. It is also reported that both TerraUSD (UST) which is the stable algorithmic coin that has lost its 1-to-1 peg to the US dollar, as well as its associated Luna token, were trading close to zero by the second quarter.
However, elsewhere in the crypto market, the sentiment was beginning to improve. Tether, which is the most stable coin that is used in cryptocurrency marketplaces to aid in trading was able to recover from the mini-crash earlier and sat down to fears that its woes could spill into the market.
The tokens that underpin the most important decentralized finance protocols also grew. Even ApeCoin increased, increasing over 35% in just 24 hours, according to CoinMarketCap.com.
Bitcoin was trading at over $30,000, after having dropped to around $25,000 during the previous trading day. Some alternative coins also improved in value, with Bitcoin Cash increasing by 20% in one instance before squeezing gains.
It’s a much more optimistic look at the situation after the chaos affected cryptocurrency markets on Wednesday as UST began a “death spiral”. The day before, Bitcoin had suffered an almost 10% decline.
“The fact that Tether is stabilizing means that the margin calls that took place are fading,” said Matt Maley, chief market strategist at Miller Tabak + Co. “Whenever you have to sell in any area, it will overshoot. The market is still in a state of panic however, the swelling has decreased. Investors may be anxious for another few days however, the supply-demand equation has stabilized.”
Market watchers pointed out that Bitcoin generally trades with stocks, and managed to gain on Thursday, even though stocks like the S&P 500 as well as Nasdaq 100 sank 0.1% and 0.2 percent, respectively.
Treasury Secretary Janet Yellen, meanwhile, declared that Terra’s fall exposed the dangers of currency tokens that claim to be tied against the US dollar, however, she also said that the collapse was not any threat to the stability of financial markets.
“Crypto is of no economic value. There aren’t many people who have a stake in the cryptocurrency,” said Brian Nick the chief investment strategist of Nuveen. However, he said the cryptocurrency market is controlled by the same force impacting equity markets right now.
“What will be the first to be penalized as financial conditions tighten? Anything that has a high value and a non-existent or uncertain source of revenue,” He said over the phone. “And crypto is a case of high valuations but none of the revenue streams. This is in a connection with the high growth stocks and tech. It’s correlated, but clearly, the market is more volatile since the market isn’t as liquid.”
Different trading desks reported normal conditions and B2C2 declared that it witnessed two-way flow in UST and more buyers of USDC. Stephane Ouellette, chief executive of FRNT Financial Inc. has said he’s received inquiries regarding Tether as well as clients asking whether its decentralization could provide arbitrage opportunities.
“Last night there was a huge arb,” the source added, noting to the statement that “everything at Tether and Bitfinex appears to be working as usual.”
“There’s no indication anything is going wrong there at all besides the market move, which is now looking like it was circumstantial,” the analyst said.
However, the cryptocurrency market is still in a tumultuous decline. “The question, as always, is: now what?,” wrote Michael Purves, chief executive, and co-founder of Tallbacken Capital Advisors. Purves anticipates a further decline in the case of Bitcoin and is considering the possibility of Bitcoin hitting the $20,000-$15,000 mark.
“A move to 15K would be a move off the January levels which would be quite consistent with the last three long-term momentum reversals we have seen,” the analyst wrote in an article. “However, bears should be prepared for aggressive relief rallies along the way (just as they should with equities).”