The cryptocurrency market has lost $ 1.9 trillion six months after reaching a record high. Interestingly, this loss is greater than what was witnessed during the crisis in the subprime mortgage market in 2007 – about 1.3 billion US dollars, which has raised fears that growing cryptocurrency risk will spill over to traditional markets and damage both equities and bonds.
Stablecoins not very stable
A sharp drop from $ 69,000 in November 2021 to about $ 24,300 in May 2022 in the price of Bitcoin (BTC) has caused a sell-off in the cryptocurrency market.
Unfortunately, the bearish attitude has not even spared stablecoins, the so-called cryptocurrency equivalents, which have not been able to be as “stable” as they claim.
For example, TerraUSD (UST), once the third largest stablecoin in the industry, lost a dollar connection earlier this week and fell to $ 0.05 on 13 May.
At the same time, Tether (USDT), the largest stablecoin in terms of market value, briefly fell to $ 0.95 on 12 May. But unlike TerraUSD, Tether managed to recover to close to $ 1, primarily because it claims to support its dollar bond by using old-fashioned reserves, including real dollars and government bonds.
But that’s where the problems begin, according to a warning issued by rating agency Fitch last year. The agency feared that Tether’s rapid growth could affect the short-term loan market, as it holds large amounts of money, according to the company’s division of assets published here.
If traders decide to throw away their Tether, the most popular dollar-linked stablecoin in the cryptocurrency industry, for cash, it would jeopardize the volatility of the short-term credit market, Fitch said.
The loss of cryptocurrencies is now equivalent to 1.7 trillion dollars. The subprime mortgage market in 2007 was $ 1.3 trillion.
It is very likely that Crypto will be the catalyst for the rapid global collapse.
Weekend risk is HUGE. mynd.twitter.com/4Ewo73uTeg
– Mac10 (@SuburbanDrone) May 12, 2022
The credit market is already struggling with the weight of higher interest rates. Tether could push it further down as it has $ 24 billion worth of commercial paper, $ 35 billion worth of Treasury bonds and $ 4 billion worth of corporate bonds.
Signs are already visible. For example, Tether has been reducing its commercial paper reserves during the cryptocurrency correction over the past six months, its chief technology officer, Paolo Ardoino, confirmed on May 12.
So, given Fitch’s warning last year, many analysts fear that the “financial crisis” could soon spread to the traditional market.
That includes Joseph Abate, Barclays ‘chief executive of fixed income research, who believes that Tether’s decision to sell its commercial papers and pre-maturity certificates could mean paying several months’ interest in fines.
As a result, they may be forced to sell their treasury bills, which account for 44% of their net worth.
Related: What Happened? Terra debacle exposes flaws affecting the cryptocurrency industry
“We do not know what is going on, but the danger cannot be ruled out,” said Robert Armstrong, author of the Financial Times’ Unhedged newsletter, adding:
“Stablecoins have a total market capitalization of more than $ 150 billion. If all the plugs break – and they could – then ripples will go far beyond cryptocurrencies.”
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