Tether says it’s performing a $1 billion swap with a third party to shore up stablecoin
The price of bitcoin was under pressure again on Thursday, with even bigger losses among smaller cryptocurrencies, as the collapse of stablecoin UST continued to reverberate across the market.
Bitcoin BTCUSD, -1.31%, the world’s biggest cryptocurrency by market cap, was down 5% to $26,780. The crypto has lost 24% so far this week, and more than 50% from an all-time high seen last November.
Investors have also been stymied by Wednesday’s data showing a bigger-than-expected rise in U.S. inflation, which led to another losing day for Wall Street stocks. U.S. equity futures ES00, -0.64% NQ00, -1.10% were lower ahead of Thursday’s open.
The market’s recent downturn has largely triggered by the collapse of so-called algorithmic stablecoin TerraUSD, or UST, which is supposed to maintain a one-to-one peg against U.S. dollars. UST was last trading at around 49 cents on Binance, but has plunged below 30 cents this week.
UST is backed by another crypto —Luna — via algorithms. Traders are supposed to be able to exchange UST for the equivalent of $1 of Luna, and when UST trades below $1, holders have an incentive to burn it and mint Luna LUNAUSD, -93.20%, which has also seen a massive slump. Luna was trading at 23 cents, a loss of 96% over the past 24 hours.
Some were blaming a fresh push lower on the crypto market’s largest stablecoin, Tether USTUSD, -7.97%, also referred to by USDT, which was trading below the buck at as low as 95 cents. A Tether spokesman recently told MarketWatch that they do not “believe that the UST situation means anything for the centralized stablecoin market. They are entirely different types of assets.”
But Tether said early Thursday it would perform a $1 billion swap with a third party, adding the total supply of Tether would remain unchanged.
“Tether is struggling to hold its Peg. It is hurting all Crypto,” tweeted Jim Bianco, president of Bianco Research. “Confidence is shot in crypto and the risk of contagion is high. Any wobbles anywhere send everyone running. Coinbase is not helping! It was down 26% today and is talking about bankruptcy. And if it does, you lose your coins.”
In Twitter comments on Wednesday, the chief executive officer of crypto exchange Coinbase Global COIN, -26.40% insisted that the company has “no risk of bankruptcy.”
However, he suggested customer assets could be lacking some bankruptcy protections. The comments came a day Coinbase earnings indicated a slowdown in trading, and shares have lost 48% this week, and 78% year-to-date.
The next support level for bitcoin is $25,000, followed by $22,000, Naeem Aslam, chief market analyst at AvaTrade, told investors in a note.
“It is clear that bulls have lost the battle, and the selling pressure is very much on. The big question for traders is if the current sell-off will shock Hodler,” said Aslam. “HODL”, which is popular among crypto enthusiasts meaning, “hold on for dear life,” with those investors referred to as HODLers.
Social media has been awash with purported accounts of investors losing huge amounts of money over the collapse of UST.