The cryptocurrency market

As stock markets plummet to the brink of the coronavirus epidemic, fears of rising prices and declining economic outlooks drive cryptocurrency investors away.

Bitcoin fell temporarily below $ 26,000 on Thursday for the first time in 16 months amid a sell-off cryptocurrency that wiped out more than $ 200 billion across the market in one day.

Investors are fleeing cryptocurrencies at a time when stock markets have fallen to the pinnacle of the coronavirus pandemic due to fears about rising prices and deteriorating economic prospects.

US inflation data released on Wednesday showed that prices for goods and services rose 8.3% in April, more than analysts had expected, and close to the highest level in 40 years.

Traders are also worried about stablecoin coins, such as Terra. TerraUSD, or UST, is supposed to mirror the value of the dollar, but fell to less than 30 cents on Wednesday, shaking investor confidence in the so-called decentralized financial space.

What is a stablecoin

Stablecoins are a type of cryptocurrency that is anchored to the value of an existing asset, often the US dollar.

While popular digital currencies, such as Bitcoin and Ethereum, are known for occasional volatile fluctuations in value, the steady promise of a stablecoin is meant to offset these fluctuations. This can make cryptocurrencies attractive as a hedge against Bitcoin or as an alternative deposit for funds if someone does not want to keep their money in cash.

Stablecoins also have a clear use in international money transfers, as individuals and legal entities can send funds using a stablecoin without paying expensive transfer fees.

Are stablecoins regulated?

While global regulators are trying to set rules for the cryptocurrency market, some have highlighted stablecoins as a particular risk to financial stability.

Stablecoin coins are like bank accounts in the crypto world that are barely regulated. Digital currency investors often turn to them for security in times of market volatility.

Record losses for bitcoinBut UST, an "algorithmic" stable currency coin, which is backed by code rather than cash held in a reserve, has struggled to maintain a stable value as holders rushed to withdraw en masse.

Record losses for bitcoin

If bitcoin does not show a spectacular recovery in the next two days, the largest cryptocurrency in the world will record a record of seven consecutive weeks of losses.

"I don't think the worst is over," said Scottie Siu, chief investment officer at Axion Global Asset Management, a Hong Kong-based crypto-based business. "I believe that the downward trend will continue in the coming days," he added.

The mechanism that kept TerraUSD at a 1: 1 ratio against the dollar gave way to sales pressure and fell below 10 cents. Tether, the largest dollar-backed stable, fell to 95 cents.

"More than half of the Bitcoin and Ether trades exchanged are against a stablecoin, with USDT or Tether having the largest share. For this type of stablecoins, the market must be confident that the issuer has sufficient liquidity to be able to sell in a time of market crisis". - Morgan Stanley analyst

TerraUSD, also called UST, is a stablecoin that has seen its value drop to $ 0.30 this week.

The crypto market as a whole is recovering, with most of the first 100 coins in green at the time of writing, following an extended downward trend, which has seen several cryptocurrencies hit lows in the last 2 years. 7 of the top 10 cryptocurrencies have seen double-digit gains in the last 24 hours.

Bitcoin (BTC), Ether (ETH) and LUNA Terra were among the major assets that generated losses among investors. Earlier in the week, bitcoin fell amid concerns about inflation and the risk of contagion from the free fall of TerraUSD (UST).

The iconic crypto dropped to $ 24,000 yesterday morning, before a slight overnight recovery. It is currently trading at over $ 30,000 and has gained about 9% in the last 24 hours.

Ethereum also gained about 9% during this time and was trading at just over $ 2,000 at the time of writing.

The biggest winner in the top 10 is Cardano, up 29%. However, its weekly losses are about 27%, similar to most other major cryptocurrencies. In addition to the top 10, Polkadot led the way with 27%.