Bitcoin plunged further below $30,000 as investors fled cryptocurrencies.
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Bitcoin plunged below $27,000 for the first time in more than 16 months on Thursday as cryptocurrency markets ramped up losses amid fears of rising inflation and the collapse of a controversial stablecoin project.
According to Bitstamp data, the price of bitcoin fell to $26,595.52 on Thursday morning. That is the first time bitcoin has sunk below the $27,000 level since December 30, 2020.
As of 1:30 a.m. ET, bitcoin was trading at $27,061, down 15% in the past 24 hours.
Ether, the second largest digital currency, dropped to just $1,789 per coin. It is the first time the token has fallen below $2,000 since July 2021.
Ether last dropped 23% at a price of $1,852.
Investors are fleeing cryptocurrencies at a time when stock markets have plunged from the heights of the coronavirus pandemic amid fears of rising prices and deteriorating economic prospects. US inflation data released Wednesday showed prices for goods and services rose 8.3% in April, ahead of analysts’ expectations and close to a 40-year high.
Also weighing on the minds of traders is the demise of the controversial stablecoin protocol Terra.
TerraUSD, or UST, should reflect the dollar’s value, but it fell below 30 cents on Wednesday, shaking investor confidence in the so-called decentralized financial space.
Stablecoins are like the bank accounts of the barely regulated crypto world. Digital currency investors often turn to them for safety in times of market volatility.
But UST, an “algorithmic” stablecoin backed by code rather than cash in reserve, is struggling to maintain a stable value as holders have flocked to the exit.
Thursday morning, UST was trading at about 62 cents, still well below the target $1 peg.
Luna, another Terra token with a floating price and intended to absorb UST price shocks, erased 97% of its value in 24 hours and was last worth just 30 cents – even less than UST.
Investors fear the consequences for bitcoin. Luna Foundation Guard – a fund set up by Terra creator Do Kwon – had amassed a pile of billions of dollars worth of bitcoin to help UST in times of crisis.
The fear is that Luna Foundation Guard will sell much of its bitcoin holdings to support its ailing stablecoin. That’s a risky gamble, not least because bitcoin itself is an incredibly volatile asset.
Investors’ fears were compounded on Thursday by a fall in value of tether, the world’s largest stablecoin. The token dropped below 99 cents at one point. Economists have long feared that Tether may not have the required amount of reserves to strengthen the dollar peg in the event of massive withdrawals.