Daily Management Review

Bitcoin Likely To Witness Record Losing Streak As Crypto Market Severely Impacted By 'Stablecoin' Collapse


Cryptocurrencies suffered significant losses on Friday, with bitcoin trading at $30,000 and on track for a record losing streak due to the collapse of TerraUSD, a so-called stablecoin.
Concerns about high inflation and rising interest rates have prompted widespread dumping of hazardous investments, including crypto assets. Sentiment is extremely delicate, as alleged dollar-pegged tokens have failed.
Bitcoin, the largest cryptocurrency by total market value, recovered during the Asian session and was trading at $30,300 at 0623 GMT, up 5 per cent. It has made some progress after hitting a 16-month low of approximately $25,400 on Thursday.
However, it is considerably below week-ago levels of nearly $40,000 and, unless weekend trade improves, is on track for a record seventh consecutive weekly loss.
"I don't think the worst is over," said Scottie Siu, investment director of Axion Global Asset Management, a Hong Kong based firm that runs a crypto index fund.
"I think there is more downside in the coming days. I think what we need to see is the open interest collapse a lot more, so the speculators are really out of it, and that's when I think the market will stabilize."
This week, TerraUSD broke its 1:1 peg to the dollar, as its mechanism for maintaining stable, which used another digital currency, collapsed due to selling pressure. It was recently trading near 10 cents.
Tether, the largest stablecoin and one whose makers claim is backed by dollar assets, has also been under attack, falling to 95 cents on Thursday, according to CoinMarketCap statistics, but regaining its one dollar value on Friday. 
Since November, selling has approximately half the worldwide market value of cryptocurrencies, but the slump has turned to panic in recent sessions due to the squeeze on stablecoins.
These are tokens that are tied to the value of traditional assets, most commonly the US dollar, and serve as the primary channel for transferring money between cryptocurrencies or converting balances to fiat cash.
"Over half of all bitcoin and ether traded on exchanges are versus a stablecoin, with USDT or Tether taking the largest share," analysts at Morgan Stanley said in a research note.
"For these types of stablecoins, the market needs to trust that the issuer holds sufficient liquid assets they would be able to sell in times of market stress."
The running business of Tether claims to have the requisite assets in the form of Treasuries, cash, corporate bonds, and other money-market instruments.
However, if traders continue to sell, Tether is expected to face future tests, and analysts are afraid that stress might spill over into money markets if pressure pushes more and more liquidation.
After falling as low as $1,700 on Thursday, Ether, the second-largest cryptocurrency by market value, remained near $2,000 on Friday. Bitcoin and ether are around 60 per cent lower than their November highs.
Crypto-related stocks have taken a beating as well, with shares in broker Coinbase settling overnight but still down by half in less than a week.
In Asia, trading platforms and other crypto services operated by Hong Kong-listed Huobi Technology and BC Technology Group saw weekly declines of more than 17 per cent.
In the midst of the upheaval, Nomura said on Friday that it has began issuing bitcoin derivatives to clients, becoming the first traditional financial institution to enter the asset class.