The entire cryptocurrency market is no more than $1,200 billion compared to over $3,000 billion at its peak. (Photo: Getty Images)
6:33 | LONDON – Bitcoin’s tumble continued Thursday as investors flee risky assets amid the prospect of tighter U.S. monetary policy and problems with stablecoins eroding investor confidence in the sector.
The price of bitcoin, which fell to $25,424 overnight Wednesday to Thursday, surged to $27,645 around 6:20 AM Québec time, down 30% on the previous month and at levels more seen since December 2020 of the year.
“The cryptocurrency carnage continues for another day,” sums up Fawad Razaqzada, an analyst at StoneX.com.
Bitcoin is down 60% from its all-time high last November and the entire crypto market is now over $1200 billion compared to over $3000 billion at its peak.
Between the war in Ukraine and the spread of COVID-19 in China, global activity is slowing as inflation forces the US Federal Reserve (Fed) to raise rates, a toxic cocktail for the markets.
This macro backdrop “has caused a shock in the tech sector that has dragged cryptocurrencies in its wake, confirming that bitcoin and the like are not really being used to fight inflation,” commented analyst Victoria Scolar at Interactive Investor.
Fans of the first cryptocurrency sometimes defend the idea that bitcoin, whose supply is fixed by an algorithm and not by a central bank, is therefore a safe haven from inflation, just like gold.
The woes of the cryptocurrency sector have been exacerbated by problems with the stablecoin Terra (UST), which is allegedly pegged to the US dollar.
But due to the market shock, the cryptocurrency was trading at $0.53.
Analysts at JP Morgan noted on Wednesday that the “possible collapse” of the stablecoin “has curtailed the appetite of crypto investors, and cash flows have turned negative.”
And the price of the Tether stablecoin, whose parity must be guaranteed by the reserves of its issuer, briefly fell below 96 cents.
According to the Fed Financial Stability Report released earlier this week, the stablecoin market was worth $180 billion in March 2022.
Companies linked to stock-listed cryptocurrencies were logically affected by the shock to the sector, with exchange platform Coinbase falling 26.4% on Wednesday, to its lowest level since its listing on the stock exchange a year earlier.
MicroStrategy, the software publisher known for having its boss Michael Saylor bet on raising funds to invest in bitcoin, lost 25.4%.