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Crypto collapse intensifies as stablecoin Tether slides below dollar peg

By Elizabeth Howcroft, Samuel Indyk and Gertrude Chavez-Dreyfuss LONDON/NEW YORK (Reuters) - The meltdown in TerraUSD, one of the world's largest stablecoins, rippled through...

By Elizabeth Howcroft, Samuel Indyk and Gertrude Chavez-Dreyfuss

LONDON/NEW YORK (Reuters) - The meltdown in TerraUSD, one of the world's largest stablecoins, rippled through cryptocurrency markets on Thursday, pushing another major stablecoin Tether below its dollar peg and sending bitcoin to 16-month lows.

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.

Bitcoin, the largest cryptocurrency by market cap, hit a low of $25,401.05 on Thursday, its lowest level since Dec. 28, 2020 It was last down 2.1% at $28,400.

In the past eight sessions, it 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.

NOT-SO-STABLECOINS

Stablecoin TerraUSD has been hit by the turmoil and broke its peg to the U.S. dollar, which led to it falling as low as 31 cents on Wednesday. On Thursday it was trading around 38 cents.

"Unfortunately, the fallout from this situation goes beyond the material losses sustained by investors," said Anto Paroian, chief operating officer at crypto asset hedge fund ARK36.

"The de-pegging will likely result in a substantial regulatory risk - if not for the whole crypto space, then certainly for the stablecoins market."

Stablecoins are digital tokens pegged to the value of traditional assets, such as the U.S. dollar. But TerraUSD is an algorithmic, or "decentralised", stablecoin, and was supposed to maintain its dollar peg via a complex mechanism which involved swapping it with another free-floating token.

On Thursday, Terra developers halted the network's blockchain to prevent attacks following the collapse of its algorithmic stablecoin and the related Luna token. The Terra blockhain, however, has since restarted. nL2N2X425J]

The non-profit Luna Foundation is an affiliate of Terraform Labs, the company behind the TerraUSD.

Even stablecoins backed by traditional assets were showing signs of stress on Thursday.

Tether slipped below its 1:1 dollar peg, hitting a low of 95 cents around 0724 GMT on Thursday, based on CoinMarketCap data.

"The lack of transparency provided by Tether on the quality of commercial paper they hold to back the peg made it the obvious next target," said BCB Group's Usher.

"However, Tether is a very different animal to Terra, with a more proven ecosystem and I have far more confidence that when volatility subsides it can regain its peg and stability," he said.

Paolo Ardoino, Tether's chief technology officer, said in a Twitter (NYSE:TWTR) Spaces chat that the stablecoin had reduced its exposure to commercial paper over the last six months and now holds the majority of its reserves in U.S. Treasuries.

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 market, according to CoinMarketCap.

The large number of centralised cryptocurrency exchanges and decentralised venues, each with their own liquidity profile and credit risk, was adding to price distortions across the market, Denis Vinokourov, head of research at Corinthian Digital Asset Management, said.

"The spillover effects into other stablecoins is in part driven by the fragmented nature of the market," Vinokourov said.

"This credit risk, especially during the times of tight liquidity conditions and mass deleveraging leads to further price distortions."

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.

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18-05-2022 14:24:25 (UTC+7)

EUR/USD

1.0516

-0.0031 (-0.29%)

Summary

Buy

Moving Avg:

Buy (6)

Sell (6)

Indicators:

Buy (7)

Sell (1)

EUR/USD

1.0516

-0.0031 (-0.29%)

Summary

Buy

Moving Avg:

Buy (6)

Sell (6)

Indicators:

Buy (7)

Sell (1)

GBP/USD

1.2421

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Buy (4)

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Sell (7)

USD/JPY

129.23

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AUD/USD

0.7012

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USD/CAD

1.2824

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EUR/JPY

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Gold Futures

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US Coffee C Futures

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Euro Stoxx 50

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S&P 500

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DAX

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20,588.00

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US Small Cap 2000

1,840.30

+56.87 (+3.19%)

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IBEX 35

8,526.00

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50.410

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Bayer AG NA

64.09

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Allianz SE VNA O.N.

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Adidas AG

182.52

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Deutsche Lufthansa AG

6.842

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Siemens AG Class N

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9.531

-0.007 (-0.07%)

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 EUR/USD1.0516Buy
 GBP/USD1.2421↑ Sell
 USD/JPY129.23↑ Buy
 AUD/USD0.7012Neutral
 USD/CAD1.2824↑ Sell
 EUR/JPY135.89Buy
 EUR/CHF1.0476↑ Buy
 Gold1,813.10↑ Buy
 Silver21.597↑ Buy
 Copper4.2045Neutral
 Crude Oil WTI110.92↑ Buy
 Brent Oil112.90↑ Buy
 Natural Gas8.181↑ Sell
 US Coffee C228.63Neutral
 Euro Stoxx 503,740.55Neutral
 S&P 5004,088.85↑ Buy
 DAX14,190.26↑ Buy
 FTSE 1007,513.44↑ Buy
 Hang Seng20,588.00↑ Buy
 Small Cap 20001,840.30Neutral
 IBEX 358,526.00↑ Buy
 BASF50.410Neutral
 Bayer64.09↑ Sell
 Allianz201.40↑ Sell
 Adidas182.52↑ Sell
 Lufthansa6.842Neutral
 Siemens AG116.65↑ Buy
 Deutsche Bank AG9.531Sell
Mua/Bán 1 chỉ SJC
# So hôm qua # Chênh TG
SJC Eximbank6,825/ 6,925
(0/ 0) # 1,842
SJC HCM6,825/ 6,925
(0/ 0) # 1,841
SJC Hanoi6,825/ 6,927
(0/ 0) # 1,843
SJC Danang6,825/ 6,927
(0/ 0) # 1,843
SJC Nhatrang6,825/ 6,927
(0/ 0) # 1,843
SJC Cantho6,825/ 6,927
(0/ 0) # 1,843
Cập nhật 18-05-2022 14:24:27
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Cập nhật lúc 14:17:56 18/05/2022
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