The fall of bitcoin continues as investors flee risky assets amid the prospect of tougher US monetary policy. A cryptocurrency plunge reinforced by the difficulties of “stablecoins” (stable virtual currencies) which affected investor confidence in the sector. The price of bitcoin, which sank to $25,424 overnight from Wednesday to Thursday, rose to $27,645 around 12:20 p.m. (Paris time), down 30% over one month and at levels not seen since December 2020. It’s down 60% since its all-time high last November, and the entire cryptocurrency market is down to just $1.2 trillion, down from over $3 trillion at its peak.”The ‘crypto carnage’ continues for another day “, summarizes Fawad Razaqzada, analyst at StoneX.com quoted by AFP.
Toxic macroeconomic backdrop
Among the explanations put forward, the macroeconomic context. Between the war in Ukraine and the spread of Covid-19 in Chinaglobal activity is slowing as inflation forces the US Federal Reserve (Fed) to raise its rates, a toxic cocktail for the markets. This backdrop “sent shockwaves through the tech industry that dragged cryptos down the drain, confirming that bitcoin and the like aren’t really used to fight the virus.‘inflation“, commented Victoria Scholar, analyst at interactiv investor. Fans of the first cryptocurrency, on the contrary, defend the idea that bitcoin, whose issue is fixed by an algorithm and not by a central bank, is therefore a refuge against the inflation, like gold.
Coinbase is collapsing
The virtual currency platform Coinbase is also caught in the turmoil. It collapsed on Wall Street on Wednesday to its lowest level after the publication of results weighed down by the departure of many users and the fall in transactions. In a few hours, the action lost 24.6% to 55.02 dollars, a far cry from the 381 dollars reached on its first day on the Nasdaq on April 14, 2021. Coinbase, a platform on which you can buy and sell virtual currencies such as bitcoin and ether, benefited from the meteoric rise of this asset class in 2020 and 2021. But in the wake of stock markets struggling since the start of the year, the price of most virtual currencies is currently declining and many brokers prefer to stay away from this market known for its extreme volatility.
While the number of monthly active users increased by 51% in the first quarter compared to the same period in 2021, to 9.2 million, it shows a drop of 19% compared to the previous quarter. And, according to Coinbase, user drain will continue this quarter. Between the drop in the value of virtual currencies, less volatility and a drop in the number of users, Coinbase’s revenue plunged 35% in the first quarter, to $1.16 billion. The group, created just 10 years ago, has at the same time continued to invest in its development and its operating expenses have more than doubled. Result: it recorded a net loss of 430 million dollars in the first quarter of 2022, against a profit of 388 million a year earlier.
Panic among customers
This news is hardly brilliant but does not explain the wind of panic which blew on Wednesday. Three lines in the quarterly report filed with the SEC, sparked the wildest rumors: Assets deposited by clients “could be considered property subject to bankruptcy proceedings and clients could be treated as general unsecured creditors .” Clearly, if Coinbase is declared bankrupt, the money deposited could be used to reimburse the company’s creditors. The group immediately reacted by stating in a letter to shareholders that “these market conditions are not permanent.” Its managing director, Brian Armstrong launched a series of tweets to justify a change in documents sent to the stock market authorities, assuring that Coinbase was not “facing a risk of bankruptcy” and that the funds of its customers were “safe” on the platform.
Stablecoins in turmoil
To paraphrase a former president, bad news flies in squadrons. In addition to the Coinbase misadventure, the terra, a so-called “stable” virtual currency in other words pegged to a traditional currency, in this case the US dollar, plummets by 50%. Normally 1 terra is worth about 1 dollar. But yesterday it fell to 30 cents.
Explanation: the stability of some of these “stablecoins” is not ensured by currency reserves, but by an algorithm that performs arbitrations according to the supply and demand of another cryptocurrency. This is the case of terra, which is backed by the cryptoasset developed by the Luna Foundation Guard, an organization that says it wants to “promote a decentralized economy”. However, this digital token has itself tumbled since the start of the week under the impact of a wave of liquidations. It sank almost 95% on Wednesday, to $1.69, according to CoinGecko. Luna Foundation Guard announced on Monday that it has deployed the equivalent of $1.5 billion in bitcoins and terras to secure the stablecoin’s parity with the dollar with no immediate effect. US Treasury Secretary Janet Yellen, speaking to the Senate Banking Committee on Tuesday, said the episode “simply illustrates the fact that this is a fast-growing product, that it poses risks to financial stability and that we need an adequate framework”.
The stablecoin Tether, whose parity is supposed to be guaranteed by reserves from its issuer, also saw its price briefly drop below 96 cents. The stablecoin market was worth $180 billion in March 2022, according to the Fed’s Financial Stability Report released earlier this week.
“Tether is now very watched, indicates in a note Vincent Boy market analyst at IG France, because if it were to fall sharply, this would lead investors to sell to recover US dollars. The project could show its limits and derail everything. the cryptocurrency market. On several occasions, Tether has been criticized for not having as many US dollars as its market capitalization, which is currently $81 billion. Indeed, if all investors wanted to withdraw their funds and the foundation did not If you don’t have enough, it would cause serious cash flow problems. This worst-case scenario might remind us of the crash of 1929, when everyone wanted to withdraw their money from the banks, but they didn’t have enough cash in their vaults. .” But the analyst believes that this crash in the digital asset market is not the first and does not call the blockchain into question.
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