Bitcoin, Cryptocurrency Lost $200 Billion in One Day

Contagion spreads in stock markets as investors see something else to worry about

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The massive selling has spread like wildfire across the cryptocurrency world in what one analyst says is reminiscent of the operations of banks during the 2008 financial crisis. Here is what we know.

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How much did they lose?

The sale wiped out more than $200 billion from the cryptocurrency market in just 24 hours, Bloomberg reports, citing price-tracking website CoinMarketCap estimates.

Bitcoin is down as much as 10 percent to a 16-month low of $2,5401.05. In the past eight sessions, it has lost a third of its value, or $13,000, and is down more than 45 percent so far this year. From a peak of $69,000 in November 2021, it has lost nearly two-thirds of its value.

Ethereum, which has given up more than half its market value so far this year, is down as much as 16 percent.

The sell-off took the combined market capitalization of all cryptocurrencies to $1.12 trillion, about a third of what it was last November, Reuters reports, citing data from CoinMarketCap, with more than 35 percent of those losses coming this week.

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Why is that?

Panic spread over the collapse this week of the TerraUSD stablecoin, otherwise known as “UST,” when it slipped below the 1:1 peg to the dollar.

“TerraUSD’s wedge collapse has had some pretty bad and predictable ramifications. We have seen massive liquidations in BTC, ETH and most ALTs,” Richard Usher, head of OTC trading at BCB Group, told Reuters, adding that the moves are reminiscent of bank operations during the crisis. Finance for the year 2008.

TerraUSD, which recently climbed to the top 10 coins by market cap, was priced at around 50 cents on Thursday, according to CoinGecko price data.

Stablecoins are digital tokens that are tied to the value of a traditional asset, such as the US dollar. Because of this, they are favored in the cryptocurrency markets in times of turmoil.

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Most stablecoins are backed by reserves, but TerraUSD is an arithmetic, or “decentralised,” stablecoin that is supposed to maintain its peg via a complex mechanism that involves exchanging it for another free-floating token.

But even reserve-backed stablecoins, which say they have enough assets to maintain their pegs, showed signs of fatigue on Thursday, Reuters reports.

Tether, a major stablecoin, has slipped below its dollar peg, reaching 98 cents early Thursday, according to CoinGecko. US dollar coins were trading at around $1.04 while Binance’s US dollar was trading at $1.07 – a significant breakout of its usual range, according to Reuters.

“The Tira incident is causing panic in the industry because Tira is the third largest stablecoin in the world,” Ipek Ozkardskaya, chief analyst at Swissquote Bank, told Reuters. But TerraUSD “has not been able to deliver on its promise to maintain a stable value in US dollar terms.”

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What will happen now?

Cryptocurrency-related stocks also fell in Asia, indicating that the massacre was spreading further. Fintech company BC Technology Group Ltd. Listed in Hong Kong, down 6.7 per cent. Japan’s Monex Group – which owns the TradeStation and Coincheck markets – closed 10 per cent lower.

But cryptocurrency investors are used to wild fluctuations in the market. Bitcoin and Ethereum quickly pared losses to trade down 4.2 percent and 9 percent, respectively, as of 4:45 pm HKT.

The biggest blow may be the stability of bill currencies, too.

This path may also undermine the notion that cryptocurrencies, which have abandoned their previous stock sell-off, are reliable stores of value amid the volatility. The digital world appears to be facing the same flight from risk as the broader market – in which case it may be fueling it.

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With the stock and crypto markets down on Thursday, traders pointed to the chaos in the cryptocurrency market as a focal point of concern, Bloomberg reports. Strategists worry that small traders, who have lost so much in the frenzy of meme stocks, will be wiped out by these crypto losses and everything else sold off.

“The contagion here is not via the links between the crypto ecosystem and the traditional financial system, but through retail investor sentiment,” Nikolaos Panegirzoglu, global market strategist at JPMorgan Chase & Co, told Bloomberg. “If the $1 trillion in capital loss in the cryptocurrency market causes a widespread curtailment by retail investors in other risky assets such as stocks, then this is where it spreads.”

What does this mean for investors?

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Market players are still assessing the fallout from the TerraUSD crash to determine whether major companies or investors have been hit hard, which could provide potential evidence of contagion, Reuters reports.

As for crypto billionaires, they’ve had a tough few weeks.

Brian Armstrong, founder and CEO of Coinbase Global Inc.’s fortune shrunk. The largest cryptocurrency exchange in the United States, increased from $13.7 billion in November to just $2.3 billion, according to the Bloomberg Billionaires Index.

Coinbase shares have fallen 78 percent since its initial public offering in April 2021, forcing Armstrong to take to Twitter to defend his company.

“There is no risk of bankruptcy” even amid the “Black Swan” event and users’ money safe, he wrote on Twitter.

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Canadian Changpeng Zhao, CEO of the close Binance company, has lost an even larger fortune than Armstrong on paper. Bloomberg reports that he debuted on the Bloomberg Wealth Index in January with a net worth of US$96 billion, making him by far the richest Canadian. By Wednesday, that had shrunk to $16 billion, using the average enterprise value of multiples of Coinbase and Canadian crypto firm Voyager Digital as the basis for the calculations, Bloomberg said.

Reporting from Thomson Reuters and Bloomberg

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