On Wednesday, the implosion of the TerraUSD stablecoin kindled wide-spread panic in the crypto space. But 24 hours later, things have calmed down significantly.
Terraform Labs halted and then restarted its Terra blockchain in the wake of the collapse of TerraUSD and its related Luna token. Tether, the largest stablecoin used in cryptocurrency markets to facilitate trading, recovered from a mini-crash, soothing frayed trader nerves that its troubles might spill into the broader market. Tokens underpinning key decentralised finance protocols also advanced, with Avalanche adding 8 per cent as of 4.45pm in New York, according to Bloomberg data. Even ApeCoin rose roughly 25 per cent, according to CoinMarketCap.com.
Bitcoin, meanwhile, rose as much as 6 per cent to trade around $US30,000, after falling to about $US25,000 overnight. And some alternative coins also gained, with Bitcoin Cash adding 20 per cent at one point before paring gains.
It’s a remarkably more positive picture from the havoc that overtook crypto markets on Wednesday amid a downward spiral in the TerraUSD stablecoin. That day, bitcoin had suffered a nearly 10 per cent drop.
“The fact that Tether is stabilising means that the margin calls that took place are fading,” said Matt Maley, chief market strategist at Miller Tabak + Co. “Whenever you get forced selling in anything, it overshoots. People are still nervous, but the selling has abated. Investors will be nervous for a few more days, but the supply-demand equation has stabilised again.”
Market-watchers noted that bitcoin, which typically trades in tandem with the stock market, was able to gain on Thursday even as the S&P 500 and Nasdaq 100 sunk 0.1 per cent and 0.2 per cent, respectively.
Treasury Secretary Janet Yellen, meanwhile, said Terra’s tumble showed the dangers of tokens that purport to be pegged to the US dollar, though she added that its implosion didn’t pose a threat to financial stability.
“Crypto has little economic significance. Not that many people own much of it,” said Brian Nick, chief investment strategist at Nuveen. Still, he added that the crypto market is being swayed by the same forces that are affecting equities right now.
“What gets punished when financial conditions are tightening? Anything with a high valuation and an uncertain or non-existent revenue stream,” he said by phone. “And crypto has inarguably high valuations and no revenue stream. That’s very much of a piece with what we’re seeing in growth stocks, tech. It’s correlated but obviously it’s more volatile because the market is less liquid.”
