Bitcoin crashes as stablecoin Terra breaks away from the dollar

This week, bitcoin briefly fell below $30,000 for the first time in 10 months, while cryptocurrencies have collectively lost almost $800 billion in market value over the past month as investors worry about monetary tightening.

This raises concerns about its interconnectivity with the rest of the financial system. Ireland is among the countries with the most Bitcoins in Europe, according to a recent survey, thanks to the ability to trade it in small amounts through apps like Revolut.

In November, Bitcoin hit an all-time high of more than $68,000, pushing the crypto market value to $3 trillion. That number has halved this week.

Bitcoin accounts for almost $600 billion of this new lower value, followed by Ethereum with a market cap of $285 billion.

Although cryptocurrencies have experienced explosive growth, the market is still relatively small.

For example, US stock markets are worth $49 trillion, while the Securities Industry and Financial Markets Association has put the outstanding value of US fixed income markets at $52.9 trillion by the end of 2021.

Most of the Bitcoin and Ethereum in circulation is held by a few.

An October report by the US National Bureau of Economic Research found that 10,000 Bitcoin investors, both individuals and corporations, control about a third of the Bitcoin market, and 1,000 investors own approximately three million Bitcoin tokens.

While the overall crypto market is relatively small, the Federal Reserve, the Treasury Department and the international Financial Stability Board have flagged stablecoins, digital tokens tied to the value of traditional assets, as a potential threat to financial stability.

Stablecoins are mainly used to facilitate trading of other digital assets. They are backed by assets that may decline in value or become illiquid in times of market stress, while the rules and disclosures relating to these assets and investors’ redemption rights are unclear.

This could leave stablecoins vulnerable to a loss of investor confidence, particularly during times of market stress, regulators said.

That happened on Monday when Terra USD, a major stablecoin, broke its 1:1 peg to the dollar, falling as low as $0.67, according to CoinGecko. This move partially contributed to Bitcoin’s fall.

Regulators are divided on the magnitude of the threat a crypto crash would pose to the financial system and economy. Bitcoin crashes as stablecoin Terra breaks away from the dollar

Fry Electronics Team

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