Crash in stablecoins drags crypto market, Bitcoin logs most volatile week in yrs
In the last seven days, Bitcoin fell by nearly 18% and Ether shed more than 25%. A sharp decline in stablecoins has made crypto markets vulnerable over the past few days.
The Crypto market hits a rock bottom this week as the sharp decline in so-called stablecoins soured investors' mood. Bitcoin witnessed its most volatile week in at least two years. Saturday continued to be another tale of a panic selloff in this market with Bitcoin the leader of the board erasing even the $29,000 mark. Ether struggled to hold the $2,000-level.
Terra LUNA is near-zero level. Last week, on May 7th, LUNA was around the $72 level. It has dropped nearly 100% in the last seven days.
Even other platforms on crypto markets could not escape selling bias on Saturday. NFT in volume terms dived nearly 29%, while in market cap it slipped nearly 4%. Metaverse tokens dive by 2.5% in market cap and over 19% in volumes. Polkadot Ecosystem Tokens dipped by over 3% in market cap and over 26% in volumes. Solana tokens dropped over 2% in market cap and by 25.5% in volumes, while Avalanche tokens slipped over 3% in market caps and fell nearly 32% in volumes.
In the past seven days, FLOW token and ApeCoin have slid down by nearly 37% and 38%. MANA shed nearly 16%, DOT dived nearly 24.5%.
Risks in stablecoins can be more manageable if they are backed by reserve assets.
In Fitch's opinion, stablecoins backed by reserve assets with clear fiat currency value face a fundamentally different set of credit issues to algorithmic stablecoins. In such cases, the stablecoin’s stability risks can be more manageable, depending on various factors, notably the safety and liquidity of the reserve assets.
Other factors relevant to the credit profiles of the issuers of reserve-backed stablecoins include regulatory risk, counterparty risk (including reserve custodians), transparency over reserves and the extent to which the underlying assets are truly uncorrelated, the legal rights of stablecoin holders, and governance and operational risks, as per Fitch's latest report.
Fitch said, "there could be significant negative repercussions for cryptocurrencies and digital finance if investors lose confidence in stablecoins. The latter play an important role in catalysing the crypto ecosystem more broadly, by providing a stable link to fiat-currency financial markets."
Coinbase Institutional’s Brian Cubellis and David Duong in a report said, "interestingly, despite larger volatility than during the sell-offs in January or December, volumes are still somewhat lower in comparison, which suggests lighter positioning as well as potentially decreased interest from retail due to a difficult market environment," cited Bloomberg.
The analysts at Coinbase stated that Bitcoin’s $30,000 threshold will become “a major resistance" if prices continue to consolidate below that mark over the next few days.
As per them, if things deteriorate further, the next line of support would come at around $20,000 which was the all-time high in the previous 2017/2018 cycle.
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