The ugly decline has highlighted major risks in dollar-denominated stablecoin currencies. TerraUSD, one of the biggest stablecoins, has lost its dollar support and collapsed.
The exchange rates of cryptocurrencies have been falling sharply. Adobe Stock / AOP
The sharp decline in the cryptocurrency market that continued last week sharpened further on Thursday. The rates of Bitcoin and many other major cryptocurrencies fell in double digits on a daily basis.
The bitcoin, the largest cryptocurrency, fell below $ 27,500 on Thursday morning at half past eleven, and Thursday saw prices below $ 27,000, the lowest since the end of 2020. Bitcoin has lost 9.8 percent of its market value daily and 30.6 percent in a week.
The price of ethereum, the second most valuable cryptocurrency in terms of market value, fell by 19.3 per cent on a daily basis and by 36.7 per cent on a weekly basis. Ethereum was traded on Thursday morning for about $ 1856, and Thursday morning prices have been the lowest for ethereum since last summer.
Of the other cryptocurrencies, the BNB fell 21 percent per day and 41 percent per week, the XRP fell 24 percent per day and 42 percent per week, and and the dogecoin went down 27 percent per day and 43 percent per week. Litecoin fell 21 percent a day and nearly 42 percent a week.
Background reasons familiar from the stock market
CoindeskAccording to the online magazine, the last day has been one of the worst billing days in recent months. The rates of Bitcoin and other cryptocurrencies have been declining since peaking last November. For example, the price of bitcoin peaked at about $ 69,000 in early November.
According to various market estimates, the exchange rate of cryptocurrencies reflects the same changes in the investment environment as, for example, the stock market. The movements in cryptocurrencies have recently correlated to record movements in the stock market, but the high investment risk in cryptocurrencies has made exchange rate reactions very sharp.
The investment market has been more shaken in recent months, especially by the acceleration of global inflation, which has been fueled by the effects of the war in Ukraine. Central banks have accelerated their interest rate hikes, and the US Federal Reserve has made rapid progress in raising interest rates. The period of loose or almost free money is considered to be receding from the investment market.
In the United States, equities fell on Wednesday to remain very high at 8.3 percent in April. Of the cryptocurrencies, bitcoin in particular has often been described as a hedge against inflation and central bank money laundering, but the strong response to inflation news has led many to question this view.
The risks are realized in stablecoin currencies
The sharp fall in exchange rates has also triggered previously sub-prime risks in the cryptocurrency market. TerraUSD, a member of the so-called stablecoins pegged to the dollar, has already lost twice the dollar collateral that has guaranteed its value in recent days, Coindesk says. This has normally always dropped the dollar-denominated cryptocurrency rate to as low as $ 0.555, a 44.5 percent drop per week.
The decline in TerraUSD is also seen as one sign that other similar algorithm-bound stablecoin cryptocurrencies would be in danger of crashing.
TerraUSD is also guaranteed with its sister currency Luna, so that, in principle, a dollar-worthy TerraUSD is always guaranteed an exchange for a dollar-denominated amount of Luna. However, Luna’s market capitalization has already fallen below TerraUSD’s market value by 96.6% per day, jeopardizing TerraUSD’s stability mechanism. Luna’s backing organization said it would support TerraUSD’s $ 1.5 billion Bitcoin reserve.