Cryptocurrencies nursed large losses on Friday, with bitcoin back above $30,000 and but still set for a record losing streak after the collapse of TerraUSD, a so-called stablecoin, rippled through cryptocurrency markets.
Crypto assets have also been swept up in broad selling of risky investments on worries about high inflation and rising interest rates. Sentiment is particularly fragile, as tokens supposed to be pegged to the dollar have faltered.
Bitcoin, the largest cryptocurrency by total market value, managed to bounce in the Asia session and traded around $30,500 at 1140 GMT. It has staged something of a recovery from a 16-month low of around $25,400 reached on Thursday.
But it remains far below week-ago levels of around $40,000 and, unless there is a rebound in weekend trade, is headed for a record seventh consecutive weekly loss.
"I don't think the worst is over," said Scottie Siu, investment director of Axion Global Asset Management, a Hong Kong based firm that runs a crypto index fund.
"I think there is more downside in the coming days. I think what we need to see is the open interest collapse a lot more, so the speculators are really out of it, and that's when I think the market will stabilize."
Crypto-related stocks have taken a pounding, with shares in broker Coinbase COIN.O steadying overnight but still down by half in little more than a week.
In Asia, Hong Kong-listed Huobi Technology 1611.HK and BC Technology Group 0863.HK, which operate trading platforms and other crypto services, eyed weekly drops of more than 20%.
But broader financial markets have so far seen little knock-on effect from the cryptocurrency crash.
"Crypto is still tiny and crypto integration within broader financial markets is still infinitesimally small," said James Malcolm, head of FX strategy at UBS.
"This idea that what goes on in crypto stays in crypto – that’s in many ways where we still are at the moment."
Selling has roughly halved the global market value of cryptocurrencies since November, but the drawdown has turned to panic in recent sessions with the squeeze on stablecoins.
Stablecoins are tokens pegged to the value of traditional assets, often the U.S. dollar, and are the main medium for moving money between cryptocurrencies or to convert balances to fiat cash. Read full story
Cryptocurrency markets were rocked this week by the collapse of TerraUSD (UST), which broke its 1:1 peg to the dollar.
The coin's complex stability mechanism, which involved balancing with a free-floating cryptocurrency called Luna, stopped working when Luna came under selling pressure. TerraUSD last traded around 9 cents, while Luna plunged close to zero. Read full story
Tether, the biggest stablecoin and one whose developers say is backed by dollar assets, has also come under pressure and fell to 95 cents on Thursday, according to CoinMarketCap data, but was back at $1 on Friday. Read full story
"Over half of all bitcoin and ether traded on exchanges are versus a stablecoin, with USDT or Tether taking the largest share," analysts at Morgan Stanley said in a research note.
"For these types of stablecoins, the market needs to trust that the issuer holds sufficient liquid assets they would be able to sell in times of market stress."