Cryptocurrencies Dangle as Tether Breaks Peg to USD
Cryptocurrencies prices have been impacted as Tether breaks its peg to the United States dollar (USD). This led to it falling as low as 31 cents on Wednesday. On Thursday it was trading around 38 cents, below its dollar peg.
In recent times, Cryptocurrencies have been swept up in a sell-off in risk assets, which has picked up steam this week as data showed U.S. inflation running hot, deepening investor fears about the economic impact of aggressive central bank tightening.
The sell-off has taken the combined market value of all cryptocurrencies to $1.2 trillion, less than half of where it was last November, based on data from CoinMarketCap. READ: Stablecoins Grow 15% to $187 Billion in 3-Month
Tether, a reserve-backed stablecoin which is supposed to be pegged 1:1 to the U.S. dollar, dropped to as low as 95 cents earlier in the global session, according to CoinMarketCap price data. It was last at 99 cents.
Despite the volatility, U.S. Treasury Secretary Janet Yellen said stablecoins like Tether and TerraUSD do not yet pose a systemic risk to the financial system.
“I wouldn’t characterize it at this scale as a real threat to financial stability, but they’re growing very rapidly and they present the same kind of risks we have known for centuries in connection to bank runs,” she said during a House Financial Services Committee hearing.
Bitcoin, the largest cryptocurrency by market cap, hit a low of $25,401.05 on Thursday, its lowest level since Dec. 28, 2020. It has gained about 7% after then to $30,000 level.
Trading data shows that in the past eight sessions, BTC has lost more than a quarter of its value, or around $10,700, and is down 37% so far this year, trading far below the peak of $69,000 it hit in November 2021.
Bitcoin’s correlation with the NASDAQ composite (has been on the rise recently and is now up near its all-time highest level, based on Refinitiv data. The NASDAQ composite has tumbled around 8% so far this month.
Ether, the world’s second-largest cryptocurrency, fell to its lowest since June 2021, sinking as low as $1,700.
Unlike previous financial market sell-offs, when cryptocurrencies have been largely untouched, the latest selling pressure in digital currencies has undermined the broader argument that they are dependable stores of value amid market volatility.
Tether is the largest stablecoin by market cap, and, along with USD Coin and Binance USD, they account for almost 87% of the total $169.5 billion stablecoin markets, according to CoinMarketCap.
Market players are still assessing the impact of TerraUSD’s troubles on investors. In its biannual Financial Stability Report on Tuesday, the U.S. Federal Reserve warned that stablecoins are vulnerable to investor runs because they are backed by assets that can lose value or become illiquid in times of market stress. #Cryptocurrencies Dangle as Tether Breaks Peg to USD
