Cryptocurrencies have been hit by a steep stock selloff and the decoupling of a major stablecoin from its peg
Cryptocurrencies have come under pressure in recent days alongside stock markets. Digital assets are increasingly moving in lockstep with equities as traditional money managers such as hedge funds and family offices have entered the space during the last two years, analysts say. Such funds may be more likely to sell crypto holdings during periods of volatility rather than hold them.
Stocks staggered Wednesday as inflation proved to be stickier than economists had anticipated, heightening concerns about how much the Federal Reserve may have to further tighten financial conditions to curb inflation. Investors are worried that aggressive interest-rate increases could weigh on growth, already a concern with Covid-19 lockdowns in some Chinese cities and the war in Ukraine.
Crypto has also been hit by a de-pegging of what was formerly the third-largest stablecoin by market value. Billed as being the least volatile part of the crypto universe, these assets are pegged to the value of government-issued currencies. So-called stablecoin TerraUSD has decoupled from its $1 peg in recent days, hitting 54 cents at 3 am ET Thursday. Its sister token Luna traded at 15 cents, down 97% from the previous 24 hours.
While the most popular stablecoins maintain their levels with assets that include dollar-denominated debt and cash, TerraUSD is what is known as an algorithmic stablecoin, which relies on financial engineering to maintain its link to the dollar.
The break in TerraUSD has also caused concerns that other stablecoins could break from their typical levels. Tether, the largest stablecoin by market value, fell to 97 cents at 3 am ET.
Treasury Secretary Janet Yellen on Tuesday reiterated calls for Congress to authorize regulation of so-called stablecoins.
Write to Caitlin Ostroff at [email protected]
Credit: www.Businesshala.com /