Sunday, 22 May 2022

Turmoil and panic in crypto market as ‘stablecoin’ slump prompts wider collapse

Turmoil and panic in crypto market as ‘stablecoin’ slump prompts wider collapse


Turmoil and panic in crypto market as ‘stablecoin’ slump prompts wider collapse

Shockwaves swept through cryptocurrency markets on Thursday as tether, the largest "stablecoin" and a foundational part of the digital asset ecosystem, broke its peg to the dollar in the latest blow to the struggling sector.

Bitcoin and ethereum, the two biggest cryptocurrencies, shed 5% and 12% respectively, extending losses that have seen both fall more than 20% over the past week. Losses have been even bigger for the smaller players, with dogecoin falling 10% on Thursday and 35% over the week.

The losses came as tether traded at less than $0.98 for the first time in two years on Thursday morning, prompting it to assure investors it was still capable of honouring withdrawals at par.

Like all stablecoins, tether is intended to only ever trade at a fixed value relative to a conventional currency: one tether token is always supposed to be $1.

However, on Monday another prominent stablecoin, terra, broke its peg to the dollar and has slumped since, now trading at barely half of its supposed stable value. That appears to have precipitated a wider crash, with even the blue-chip cryptocurrencies plummeting over the past week.

"There is a definite whiff of panic in the crypto space right now amid the stablecoin collapse," said Neil Wilson of Finalto.

Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, said: "The terra incident is causing an industry-based panic, as terra is the world's third biggest stablecoin."

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