logologologologo
  • Home
  • Business
  • Markets
  • Exchange
  • Investment
  • Personal Finance

Stablecoin Terra’s broken dollar peg hits wider crypto markets

TerraUSD, one of the world’s largest stablecoins, lost a third of its value on Tuesday, spooking cryptocurrency investors and partly contributing to bitcoin’s tumble below $30,000 for the first time in 10 months.

Stablecoins are digital tokens pegged to the value of traditional assets, such as the U.S. dollar. They are popular as safe havens in times of turmoil in crypto markets and are a common medium of exchange, often used by traders to move funds around and speculate on other cryptocurrencies.

TerraUSD, also known as ‘UST’, is a so-called algorithmic stablecoin, one of the largest by market capitalisation. On Tuesday it broke its 1:1 peg to the dollar and fell as low as 67 cents, according to price site CoinGecko.

The token shot to prominence earlier this year when non-profit Luna Foundation Guard, an affiliate of Terraform Labs, the company behind TerraUSD, pledged to amass $10 billion worth of bitcoin to support its dollar peg.

By Tuesday afternoon TerraUSD had rebounded slightly to 91 cents and was ranked as the world’s 10th largest cryptocurrency by market cap, according to CoinGecko.

Unlike other stablecoins that have reserves in traditional assets, TerraUSD maintains its peg through an algorithm that moderates supply and demand in a complex process involving the use of another balancing token, Luna.

Luna Foundation Guard said in a tweet on Monday that it would defend TerraUSD’s dollar peg through $1.5 billion in loans to over-the-counter trading firms, half in bitcoin and half in TerraUSD.

Luna Foundation Guard and Terraform Labs could not be reached for comment.

Justin d’Anethan institutional, sales director at Amber Group, said the use of bitcoin as a reserve had created a vicious cycle for TerraUSD, with sell-offs in both tokens driving the other lower.

“Bitcoin is going down as it’s being sold to defend an ecosystem that is suffering, the ecosystem suffering is creating even more panic on (TerraUSD), which is weighing on the Luna token, which requires the foundation to use more reserves to supplement and defend the peg,” he added.

“It’s not a fun situation to be in.”

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.

“Additionally, the increasing use of stablecoins to meet margin requirements for levered trading in other cryptocurrencies may amplify volatility in demand for stablecoins and heighten redemption risks,” it added.

CRYPTO JITTERS

Stablecoins as an asset class have generally benefited from market volatility in crypto markets. Three stablecoins are now in the top 10 cryptocurrencies by market capitalisation, with TerraUSD ranked eleventh.

Other major stablecoins, such as Tether and USDC, say they are backed by real assets and thus not vulnerable to the same problems that have hit TerraUSD.

But the broader cryptocurrency market has taken a hit in line with falls in traditional financial markets.

Bitcoin fell below $30,000 early Tuesday for the first time since July 2021, weakening alongside other traditional “risk off” assets such as tech stocks, but also weighed by the TerraUSD sell-off.

The world’s most widely held cryptocurrency also rebounded slightly by Tuesday afternoon to $31,272, according to Coingecko.

These drops in the face of weakening risk appetite counter the view among some crypto enthusiasts that cryptocurrencies are a store of value, akin to gold.

Bitcoin has lost more than half its value since it hit an all-time high of $69,000 in November 2021.

Analysts at Singapore’s QCP Capital said in a note that while bitcoin was currently holding at a key support level, “there is material tail risk from the (TerraUSD) de-peg along with macro concerns.”

Related posts

February 7, 2023

Google launches ChatGPT competitor in strike at Microsoft


Read more

Categories

  • Business
  • Content
  • Exchange
  • Inflation
  • Investment
  • Markets
  • Personal Finance
  • Technology
  • Uncategorized

Archives

  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021

Recent Posts

  • Google launches ChatGPT competitor in strike at Microsoft
  • Factbox-U.S. stock buybacks so far in 2023: big money, fewer companies
  • Spotify upgraded at Wells Fargo as company comes off ‘margin probation’
  • Rally in focus, Powell speaks, more earnings pour in: What to know this week
  • Where Will AMD Stock Be In 1 Year?

About Us

The Alpha Cut a Vida Street LLC Company
1404 N. Ronald Reagan Blvd.
Suite 1120
Longwood, FL 32750

Link

(843) 256-4375
https://thealphacut.com

Why Us

Terms & Privacy
Policy & Procedure
Disclaimer

This material is not an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed, and is to be used for informational purposes only.
Any performance results discussed herein represent past performance, not a guarantee of future performance, and are not indicative of any specific investment. Due to the timing of information presented, investment performance may be adjusted after the publication of this report. There can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this communication will be profitable, equal any corresponding indicated historical performance levels or be suitable for your portfolio.
All data in this communication is provided for informational purposes only and is not intended for trading or investing purposes. We expressly disclaim the accuracy, adequacy, or completeness of any data and content provided by financial exchanges, individual issuers, their respective affiliates and business partners and shall not be liable for any errors, omissions or other defects in, delays or interruptions in such data, or for any actions taken in reliance thereon. You agree not to copy, modify, reformat, download, store, reproduce, reprocess, transmit or redistribute any data or information found herein or use any such data or information in a commercial enterprise without obtaining our prior written consent.
We make no express or implied warranties or representations and shall have no liability whatsoever with respect to any data contained herein. The data may not be further redistributed or used to create indices or other financial products. This report and the views expressed herein are subject to change at any time based upon market or other conditions (such as domestic and global economic trends) and are current as of the date of publication hereof. The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.
We emphasize that Investment in the securities of smaller companies can involve greater risk than is generally associated with investment in larger, more established companies, and can result in significant capital losses that may have a detrimental effect on the value of your investments.
Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.
Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional.
Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth.As with any structuring of a portfolio of investments, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
The information, analysis and opinions expressed herein are for general, impersonal information only and are not intended to provide specific advice or recommendations for any individual entity.

copyright © Alpha Cut 2021. All Right Reserved
The Alpha Cut a Vida Street LLC Company