Bitcoin recovers slightly but still sets record drop after Terra ‘stablecoin’ collapse | Business Newsletter
Bitcoin has recovered slightly, but is still set for a record drop following the demise of a so-called stablecoin.
The crypto-asset has skyrocketed after a digital token called Terra – believed to be pegged to the US dollar – dropped in value.
The impact has spread across markets with Bitcoin, the largest cryptocurrency by total market value, hit a 16-month low at one point.
Crypto assets have also been caught up in the widespread selling of risky investments due to worries about high inflation and rising interest rates.
Bitcoin managed to bounce back in Friday trading to above $30,500 (£24,920).
This represents a bounce from a 16-month low of around $25,400 (£20,753) hit on Thursday.
But it is still well below last week’s levels of around $40,000 (£32,682) and, unless there is a rebound in weekend trading, it will lead to a seventh consecutive record loss for the week. .
“I don’t think the worst is over,” said Scottie Siu, chief investment officer of Axion Global Asset Management, a Hong Kong-based firm that operates a crypto index fund.
“I think there will be more upside in the coming days.
“I think what we need to see is open interest is going to crash more, so speculators really get out of it, and that’s when I think the market will stabilize.”
But the broader financial markets have so far seen little impact from the crypto crash.
James Malcolm, head of FX strategy at UBS, said: “Cryptocurrencies are still very small, and the integration of crypto in broader financial markets is still very small.
“The idea is that what goes on in crypto stays in crypto — which is in many ways where we are now.”
The sell-off has nearly halved the cryptocurrency’s global market value since November, but this has turned to panic in recent trading with the squeeze on stablecoins.
Ratings agency Fitch said in a note on Thursday that there could be “significant negative consequences” for cryptocurrencies and digital finance if investors lose confidence in stablecoins.
However, Fitch says that weak links between crypto markets and regulated financial markets limit the ability of crypto market volatility to trigger broader financial instability.