Bitcoin eyes record losing streak as stablecoin collapse crushes crypto

Representations of the virtual currencies Ripple, Bitcoin, Etherum and Litecoin can be seen on a PC motherboard in this image, Feb. 14, 2018. REUTERS/Dado Ruvic/Illustration

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SINGAPORE, May 13 (Reuters) – Cryptocurrencies saw huge losses on Friday, with bitcoin stalling below $30,000 and starting a record loss streak as the collapse of TerraUSD, a so-called stablecoin, rippled through the markets.

Crypto assets have also been swept up in the widespread sale of risky assets due to concerns about high inflation and rising interest rates. However, sentiment is particularly vulnerable as tokens allegedly pegged to the dollar have faltered.

Bitcoin, the largest cryptocurrency by total market value, tried to jump early in the Asia session, rising 2% to $29,500, something of a recovery from a 16-month low of about $25,400 reached on Thursday.

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It remains well below the week-ago level of about $40,000 and, unless there is a rebound in weekend trading, it is headed for a record seventh consecutive weekly loss.

“I don’t think the worst is over,” said Scottie Siu, investment director of Axion Global Asset Management, a Hong Kong-based company that manages a crypto index fund.

“I think there will be more downsides in the coming days. I think we need to see open interest collapse a lot more, so the speculators are really out, and that’s when I think the market will stabilize.”

TerraUSD (USDT) broke its 1:1 peg to the dollar this week as the mechanism to hold steady, using another digital token, failed under selling pressure. It last traded below 10 cents. read more

Tether, the largest stablecoin and which its developers say is backed by dollar assets, has also come under pressure, falling to 95 cents on Thursday, according to data from CoinMarketCap. read more

UNSTABLE

Sales have roughly halved the global market value of cryptocurrencies since November, but the decline has turned into panic in recent sessions due to the shortage of stablecoins.

These are tokens pegged to the value of traditional assets, often the US dollar, and are the primary medium for moving money between cryptocurrencies or converting funds into fiat money.

“More than half of all bitcoin and ether traded on exchanges is versus a stablecoin, with USDT or Tether taking the largest share,” analysts at Morgan Stanley said in a research note.

“For these types of stablecoins, the market needs to be confident that the issuer has enough cash to sell in times of market stress.”

Tether has been restored to dollar parity and its operating company says it has the necessary assets in treasury bills, cash, corporate bonds and other money market products.

But it will likely undergo further testing as traders continue to sell, and analysts are concerned that stress could spill over into money markets if the pressure were to force more and more liquidation.

Ether, the second-largest cryptocurrency by market cap, stabilized near $2,000 on Friday after falling to $1,700 on Thursday. Bitcoin and ether are about 60% below the record highs reached in November.

Crypto-related stocks have also taken a beating, with shares in brokerage Coinbase (COIN.O) holding steady overnight but still falling by half in just over a week.

In Asia, Hong Kong-listed Huobi Technology (1611.HK) and BC Technology Group (0863.HK), which operate trading platforms and other crypto services, saw weekly declines of more than 15%.

Amid the turmoil, Nomura (8604.T) said Friday it has begun offering bitcoin derivatives to customers, the latest move from a traditional financial institution to the asset class.

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Reporting by Tom Westbrook and Alun John.

Our Standards: The Thomson Reuters Trust Principles.

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