The “algorithmic stablecoin” of the moment, TerraUSD continued to spiral down, trading below $0.30
Bitcoin swung back and forth between gains and losses after falling to a nearly 11-month low, while TerraUSD continued its downward spiral.
The world’s largest cryptocurrency by market value fell as much as 6.2% to $29,085 before trading little changed on Wednesday morning. Analysts had been eyeing the $30,000 level as a key threshold, with many projecting that losses could accelerate once the currency falls below it.
Meanwhile, the TerraUSD algorithmic stablecoin continued to spiral down, trading below $0.30. Backers of the coin are trying to raise around $1.5 billion to prop up the token after it crashed out of its dollar peg, according to a firm founder approached for trading.
“Bitcoin and cryptocurrencies have become a risk/risk trade this year and the IPC data is a development of that,” said Matt Maley, chief market strategist at Miller Tabak + Co. “As for Terra, this news is having an impact as well. Its collapse is lower confidence in an asset class that has been losing confidence among investors all year.”
The drop came after data showed that US consumer prices rose more than expected in April, indicating that inflation will persist at elevated levels for longer. The data point also suggests that the Federal Reserve will stay on its path of aggressive interest rate hikes.
“There is extreme fear in the cryptocurrency market,” said Marcus Sotiriou, an analyst at UK-based digital asset broker GlobalBlock. “In addition to the ongoing macroeconomic headwinds, there is now a fundamental risk to the crypto industry as the UST stablecoin has de-pegged from $1.”
Cryptocurrencies and other riskier assets have been under pressure throughout the year. The Federal Reserve and other central banks are raising interest rates to combat red-hot inflation, creating an unfavorable environment for risky assets.
The area around $30,000 had been a “particularly sensitive zone” for bitcoin, wrote James Malcolm, head of currency and crypto research at UBS. That’s where the economics of mining turn negative, “which could potentially lead to increased coin sales by this key cohort,” he said. He added that long-term accumulators like MicroStrategy Inc. are beginning to fall below historical break-even points.