Crypto assets rebounded slightly on Tuesday, but did little to reverse the losses of a tumultuous first half of the month for crypto investors.
Last week, the crypto world was rocked after stablecoin Terra (LUNA1-USD) split from the dollar, seeing its value drop below 0.10 cents per coin. The event was considered particularly significant as one of the main selling points of stablecoins was to hedge against the volatility concerns typically associated with cryptocurrencies by being pegged to fiat currency.
As a result, all cryptocurrencies started to lose value, along with tether (USDT-USD), the world’s largest crypto asset by trading volume, seeing its value drop from $1 to 0.95 cents.
Bitfinex, the fintech company responsible for issuing Tether, has avoided the currency’s fall from the US dollar by promising investors to continue using a $1-per-tether rate for withdrawals; that would probably be catastrophic.
“What we found is that this kind of tide is going out,” Bloomberg Intelligence Commodities Strategist Mike McGlone said in a Yahoo Finance Live segment last Friday, following last week’s crypto meltdown. “As we clean up some of these speculative excesses, specifically Terra USD, an algorithmic stablecoin, we learn who is wearing the clothes in crypto. I like to call them crypto dollars because they all follow the dollar.”
While a long-term crypto sale started late last year and has been going on for several months, most assets have fallen particularly hard over the past week due to stablecoin events.
Investors withdrew more than $7.6 billion from Tether last week, and crypto assets other than stablecoins have had a similarly tough time.
Bitcoin (BTC-USD) fell more than 4% on Monday and once again fell below the $30,000 threshold, while Ethereum, the world’s second-largest cryptocurrency, shed as much as 3%. Both assets recaptured some of those losses on Tuesday morning and have risen significantly from their lows to date since the start of last week. Cryptocurrencies and other cryptoassets have entered what analysts call a “crypto winter” that stretches back to the spring of this year.
Bitcoin climbed just over $25,000 – its lowest point since July 2020 – before hitting over $30,000 last Thursday weekend. Refinitiv data has recently shown that Bitcoin has become more and more correlated with the Nasdaq stock index over the past month, which has frustrated investors.
McGlone sees a brighter future for those who choose to forego bleak conditions for Bitcoin. He said that as investors begin to categorize bitcoin as a risk asset, and the crypto market as a whole becomes more and more interconnected with other risk assets, Bitcoin will likely continue to suffer as the Federal Reserve raises interest rates.
‘Long-term permanent bottom’ near $30,000
McGlone explained that the short-term misfortune of Tether and other stablecoins could mean good news for bitcoin in the long run.
“One lesson I learned about Tether [is] “When you see any kind of rebound in Tether, it is usually a short-term drop and a long-term permanent bottom in the bitcoin market,” he said. “The prime example was April 2019 when the New York Attorney General landed on Tether.”
In this case, New York Attorney General Letitia James sued Bitfinex, accusing it of covering $850 million in damages. At that time, the entire crypto market was similarly shaken.
“He broke the money for a while,” he said. “Bitcoin hovered around 5,000. And then he established a permanent support. I see similar things happening around 30,000.”
According to McGlone, Bitcoin is the most important asset in the crypto market. Not only is it the oldest and best known cryptocurrency, it also has significant technical advantages over some of its competitors.
“Bitcoin is the key focus,” he said. “And remember, what Bitcoin is doing is on its way to becoming a global digital collateral. And it is returning to good support in a persistent bull market. ”
Even in this year’s bear market, it showed that Bitcoin is less volatile than in previous years.
“The most important fact I like to point out is that, in general, the volatility of these emerging crypto assets, Bitcoin in particular, continues to drop against the stock market,” he said. “This is what happened when Amazon first came out. Remember, its volatility in 2009 was pretty much the same as Bitcoin’s now. And look where you are now. To me, this is what investors look forward to in the future.”
Ihsaan Fanusie is a writer at Yahoo Finance. follow him on twitter @IFanusie.
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