Bitcoin sank further below the $30,000 mark as investors fled cryptocurrencies.
Jaap Arriens | NurPhoto | fake images
Bitcoin dipped below $27,000 on Thursday for the first time in more than 16 months, as crypto markets extended their losses amid fears of rising inflation and the collapse of a controversial stablecoin project.
The bitcoin price fell as low as $26,595.52 on Thursday morning, according to data from Bitstamp. That is the first time that Bitcoin has dropped below the $27,000 level since December 30, 2020.
At 1:30 a.m. ET, bitcoin was trading at $27,061, down 15% in the last 24 hours.
Ether, the second largest digital currency, has plunged to as low as $1,789 per coin. It is the first time the token has fallen below the $2,000 mark since July 2021.
Ether is down 23% for the last time at a price of $1,852.
Investors are fleeing cryptocurrencies at a time when stock markets have tumbled from coronavirus pandemic highs on fears about rising prices and deteriorating economic prospects.
US inflation data released on Wednesday showed prices for goods and services rose 8.3% in April, more than analysts expected and close to the highest level in 40 years.
Also weighing on the minds of traders is the fall of the beleaguered Terra protocol.
TerraUSD, or UST, is supposed to reflect the value of the dollar, but it plunged below 30 cents on Wednesday, shaking investor confidence in the so-called decentralized finance space.
Stablecoins are like the bank accounts of the barely regulated crypto world. Digital currency investors often turn to them for safety in times of market volatility.
But UST, an “algorithmic” stablecoin that is backed by code rather than cash in a reserve, has struggled to maintain a stable value as holders have rushed out en masse.
As of Thursday morning, UST was trading around 62 cents, still well below its forecast peg of $1.
Luna, another Terra token that has a floating price and is meant to absorb price shocks from UST, erased 97% of its value in 24 hours and was last worth just 30 cents, even less than UST.
Investors are spooked by the implications for bitcoin. Luna Foundation Guard, a fund created by Terra creator Do Kwon, had amassed a multi-million dollar stack of bitcoins to help support UST in times of crisis.
The fear is that Luna Foundation Guard will sell off a large portion of its bitcoin holdings to prop up its ailing stablecoin. That’s a long shot, especially since Bitcoin itself is an incredibly volatile asset.
Adding to investor fears on Thursday was a drop in the value of Tether, the world’s largest stablecoin. The token at one point dipped below 99 cents. Economists have long feared that Tether may not have the necessary amount of reserves to bolster its dollar peg in the event of massive withdrawals.