Bitcoin is set to post record streak of losses as the collapse of ‘stablecoin’ crushes the cryptocurrency

SINGAPORE/HONG KONG, May 13 (Reuters) – Cryptocurrencies posted significant losses on Friday, with bitcoin trading near $30,000 and predicting a record streak of losses as TerraUSD, the so-called stablecoin, collapsed in the markets.

Crypto assets were also swept up in a massive sell-off of risky investments due to fears of rising inflation and higher interest rates. Sentiment is particularly fragile, as currencies that are supposed to be pegged to the dollar have faltered.

Bitcoin, the largest cryptocurrency by total market capitalization, managed to bounce back in the Asian session and was trading at $30,300 at 0623 GMT, up 5%. It made some kind of recovery from a 16-month low of around $25,400 reached on Thursday.

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But it’s still well below last week’s levels of about $40K, and unless there is a recovery in the weekend’s trading, it is heading for a record seventh consecutive weekly loss.

“I don’t think the worst is over,” said Scotty Siu, chief investment officer at Axion Global Asset Management, a Hong Kong-based company that runs a crypto-index fund.

“I think there is more pullback in the coming days. I think what we need to see is the collapse of open interest much more, so the speculators are already out, and that is when I think the market will stabilize.”

TerraUSD (USDT) broke its correlation with the dollar at a ratio of 1:1 this week, as its mechanism failed to stay stable, using another digital token, under selling pressure. It was last traded near 10 cents. Read more

Tether, the largest stablecoin that developers say is backed by dollar assets, was also under pressure and fell to 95 cents on Thursday, according to CoinMarketCap data, but returned at $1 on Friday. Read more

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Representations of the virtual currencies Ripple, Bitcoin, Etherum, and Litecoin appear on a PC motherboard in this illustration, February 14, 2018. REUTERS / Dado Ruvic / Illustration

The sell-off has nearly halved the global market cap of cryptocurrencies since November, but the pullback has turned into panic in recent sessions as the stablecoins weighed.

These are tokens tied to the value of traditional assets, often US dollars, and are the main means of transferring funds between cryptocurrencies or converting balances into fiat money.

“More than half of all bitcoin and ether traded on exchanges are against 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 has enough liquid assets that they can sell in times of market stress.”

Operator Tether says it has the necessary assets in Treasuries, cash, corporate bonds and other money market products.

But Tether will likely face further tests if traders continue to sell, and analysts fear the pressure will spill over into financial markets if pressure forces more and more liquidations.

Ether, the second largest cryptocurrency by market capitalization, settled near $2,000 on Friday after dropping to $1,700 on Thursday. Bitcoin and Ether are about 60% below the record peak reached in November.

Cryptocurrency-related stocks also fell, with shares in broker Coinbase (COIN.O) settling overnight but still down by half in just over a week.

In Asia, Hong Kong-listed Huobi Technology (1611.HK) and BC Technology Group (0863.HK), which operate other crypto exchanges and services, saw a weekly decline of more than 17%.

Amid the turmoil, Nomura (8604.T) said Friday that it has begun offering customers bitcoin derivatives, the latest move by a traditional financial institution into the asset class. Read more

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(Reporting by Tom Westbrook and Elon John). Editing by Bradley Perrett

Our Standards: Thomson Reuters Trust Principles.

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