Crypto Crashes And Rebounds, Tether Faces Lehman Moment and Cathie Wood Makes A Run for Coinbase
The conditions on global markets, geopolitical pressure and the fallout of the Terra collapse caused a crypto crash yesterday which saw many of the biggest digital currencies post double digit percentage losses. This morning, most of them are rebounding from those lows.
The mechanism of algorithmically-governed stablecoins like UST makes them susceptible to the colloquial bank run.
The Terra incident is causing an industry-based panic, as Terra is the world’s third-biggest stable coin.
Commented Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.
With that in mind, and given the current market circumstances, you could conclude that the cryptosphere’s biggest ‘centralised’ stablecoin, Tether, was likely to come under fire as well.
And indeed, Tether since yesterday is facing it’s very own ‘Lehman’ moment.
Over on Wall Street, Cathie Wood’s ARK fund is picking up whatever is left of Coinbase’s stock. Meanwhile Coinbase customers worry they may not get paid out in case of bankruptcy of the platform.
A whole lot of news to cover, so let’s go.
The collapse of Terra earlier this week has let fear and capitulation enter the crypto market. In the past day, several of the world’s biggest crypto coins saw double digit falls.
Tether falls below $1 peg
Stablecoins are by nature designed to be pegged to the US dollar value, allowing crypto traders to store value and keep it safe. However, given what happened to Terra and it’s stablecoin this week, it was clear that a ‘Lehman’ moment (named after the collapse of Lehman Brothers in 2008, which unleashed the global financial crisis of 2008-2009) was bound to come. Only 24 hours after Terra plunged, Tether lost it’s dollar peg for a first time. CNBC released a screaming headline around noon European time on Thursday pointing to the possible catastrophic situation.
Vijay Ayyar, head of international at crypto exchange Luno, explained that the move was likely “speculation-driven fear” resulting from the fallout of UST’s plunge.
The environment is ripe for such news events to cause ripples through the markets as we can see.
However, crypto experts claim that there’s a difference between Tether and UST.
Algorithmic stablecoins (like UST, red) we see on the market today are innately brittle due to their design, explained Kate Kurbanova, cofounder of risk management platform Apostro, They try to hold the peg by using different algorithms, market incentives, and so on – but nevertheless, they are highly vulnerable and rely on the market and reference asset price.
However, such experiments work as there is a demand for stablecoins – especially when it comes to juicy APY,
Ark Likes Coinbase
Over on Wall Street, there was panic among investors when a reading of Coinbase’s latest SEC filing seemed to show that holders of digital coins could lose their total investment if Coinbase itself goes bust.
CoinBase’s latest filing with SEC says "In the event of a bankruptcy, our customers could be treated as our general unsecured creditors."— CryptoWhale (@CryptoWhale) May 11, 2022
In other words, when they eventually go bankrupt, they will use YOUR crypto to bail themselves out. pic.twitter.com/nwBtFFdXBc
Brian Armstrong, CEO of Coinbase, was quick to dispel those rumors but the damage was done. In post market trading on Wednesday, Coinbase dropped to some $50 only and Cathie Wood’s ARK fund was quick to snap up half a million shares, betting on this to be the bottom for the US’s biggest crypto platform.
During Thursday’s trading session, Coinbase indeed went up 8%.