First Mover Asia: Terra’s Planetary Collapse Is Taking Down Crypto Lending; Altcoins Plummet

Catch the latest episodes of CoinDesk TV for insightful interviews with crypto industry leaders and analysis. And sign up for First Mover, our daily newsletter putting the latest moves in crypto markets in context.

After hitting a new 16-month low earlier in the day, the largest cryptocurrency by market capitalization was recently trading at $29,100, up slightly over the past 24 hours. 

That was little comfort for investors who have watched it plunge with other digital assets the past few days, swept up with investor fears following the collapse of the terraUSD (UST) stablecoin against its 1:1 dollar peg. 

Bitcoin was already reeling from wider concerns about high inflation and geopolitical turmoil.

Still, other cryptocurrencies fared far worse, a sign of the risk-off environment that has investors veering away quickly from any asset with a whiff of risk. 

Ether, was trading at about $1,960, off about 5% after dipping under $1,800 earlier in the day, the first time since last July it had sunk below $1,800. 

In a sea of major crypto red, SOL, CRO, ADA and MATIC were each down roughly 10% at one point. SAND and ATOM were off 14.5% and 9%, respectively.

Meanwhile, Terra blockchain's token LUNA plunged below 2 cents on Thursday, prompting validators to briefly halted the network to implement a patch that would prevent new actors from staking on it.

Just a month ago, LUNA had reached a high of $120. UST was recently trading at about 33 cents, down about 54%.

Equity markets did better, rallying late to finish slightly down from where they started the day. Still, rising prices loomed large as a report Thursday found that mortgage rates had climbed to 5.3%, their highest rate since 2009.

In an interview on Thursday with the public radio business show Marketplace, U.S. central bank Chair Jerome Powell said that he could not guarantee a soft economic landing as the Fed increases interest rates to tame inflation. 

"Whether we can execute a soft landing or not, it may actually depend on factors that we don’t control," Powell said.

"The higher-than-expected inflation figures in the U.S. have prompted investors to move towards selling risky assets, impacting cryptocurrencies in the process as well," wrote Daniel Takieddine, the CEO for the Middle East and North Africa region of brokerage BDSwiss, in an email. 

"The move towards a rapid rise in interest rates could keep cryptocurrencies on a sliding trend for a longer period of time as investors move to safer assets."

He added: "This bearish trend is further exacerbated by the recent crash of the TerraUSD, which lost its peg to the USD by a large margin. Its fall in value has eroded investors' confidence in the crypto markets and in the stablecoin concept in particular."

Crypto lending, the backbone of decentralized finance (DeFi), was built in the rubble of the COVID-19-induced crash of March 2020. 

The prevailing logic behind crypto lending is to provide a smoother off ramp than rapid-fire selling, which depresses prices.

But as the collapse of Terra’s LUNA and UST tokens has sent shock waves throughout the industry, accelerating the decline of the price of bitcoin, knocking tether off its peg and reiterating concerns from institutions and regulators about the viability of the asset class, crypto lending appears to be its next victim.

The total locked-in value for DeFi is at $150 billion, down from just under $240 billion at the start of the year and from $230 billion a month ago, according to Glassnode data.

Data would suggest that many traders are moving their crypto out of DeFi protocols and into stablecoins like USDC with plans to redeem them (stablecoins like USDC and USDT can be redeemed for U.S. dollars upon request).

Post a Comment

Previous Post Next Post