Bitcoin tumbles, a stablecoin plunges in wild week in crypto

May 13, 2022, 11:44 AM | Updated: May 16, 2022, 9:21 pm
FILE - An advertisement for Bitcoin cryptocurrency is displayed on a street in Hong Kong, Thursday,...

FILE - An advertisement for Bitcoin cryptocurrency is displayed on a street in Hong Kong, Thursday, Feb. 17, 2022. It’s been a wild week in crypto, even by crypto standards. Bitcoin tumbled, stablecoins were anything but stable and one of the crypto industry’s highest-profile companies lost a third of its market value. (AP Photo/Kin Cheung, File)

(AP Photo/Kin Cheung, File)

NEW YORK (AP) — It’s been a wild week in crypto, even by crypto standards.

Bitcoin tumbled, stablecoins were anything but stable and one of the crypto industry’s highest-profile companies lost a third of its market value.

Here’s a look at some major developments in cryptocurrencies this week:

BITCOIN

The price of bitcoin dropped to around $25,420 this week, its lowest level since December 2020, according to CoinDesk. It steadied around $30,000 Friday, but that’s still less than half the price bitcoin fetched last November.

Some bitcoin proponents have said the digital currency could protect its holders against inflation and act as a hedge against a decline in the stock market. Lately, it’s done neither. Inflation at the consumer level rose 8.3% in April compared to a year ago, a level last seen in the early ’80’s. With the Federal Reserve aggressively raising interest rates to try to tamp down inflation, investors are dumping risky assets, including stocks and crypto. The S&P 500 is down more than 15% this year. Bitcoin has dropped about 37% year to date.

Other cryptos have fared just as poorly. Ethereum has dropped 44% and dogecoin, a cryptocurrency favored by Tesla CEO Elon Musk, has lost about half its value.

STABLECOIN COLLAPSE

Stablecoins have been viewed as a safe harbor among cryptocurrencies. That’s because the value of many stablecoins is pegged to a government-backed currency, such as the U.S. dollar, or precious metals such as gold.

But this week one of the more widely used stablecoins, Terra, experienced the cryptocurrency equivalent of a run on the bank.

Terra is a stablecoin in a cryptocurrency ecosystem known as Terra Luna. Terra is an algorithmic stablecoin, which means its supply is adjusted through complicated buying and selling to keep its peg to $1. Terra was also fueled by an incentive program that gave its holders high yields on their Terra. Luna was the coin meant to be used in the ecosystem to buy and sell assets, and at its peak it was worth more than $100.

Even though the developers of Terra said its algorithms would backstop the stablecoin, they decided to further backstop it with holdings of bitcoin.

Terra’s problems started from a combination of withdrawals of hundreds of millions, perhaps billions, of dollars from Anchor, a platform that supported the stablecoin. Combined with worries overall about cryptocurrencies, and the drop in bitcoin’s price, Terra started to lose its peg to the dollar. The bitcoin that Terra held was also worth less than they paid for it, and selling those bitcoin into the market caused bitcoin prices to fall even further.

Efforts by Terra’s developers to shore up liquidity failed. On Friday, Terra had fallen to 12 cents and Luna was trading at a value of less than one ten thousandth of one cent.

COINBASE

Coinbase lost about a third of its value this week, during which the cryptocurrency trading platform reported that active monthly users fell by 19% in the first quarter amid the decline in crypto values.

Investors had been running for the exits even before Coinbase reported a $430 million quarterly loss. Shares closed Friday at $67.87. On the day of its initial public offering just 13 months ago, shares reached $429 each.

In a letter to shareholders, Coinbase said it believed that current market conditions were not permanent and it remained focused on the long-term while prioritizing product development. While most Wall Street analysts expect Coinbase to weather the storm, they’re also warning that increased regulation of cryptocurrencies could hamper the company’s growth.

REGULATORS

There has been a lot of talk about regulating cryptocurrencies, but little in the way of action.

Treasury Secretary Janet Yellen, responding to the volatility in the crypto markets this week, said Thursday that the U.S. needs a regulatory framework to guard against the risks surrounding cryptocurrencies and stablecoins.

In March, Federal Reserve Chair Jerome Powell said new forms of digital money such as cryptocurrencies and stablecoins present risks to the U.S. financial system and will require new rules to protect consumers. This Monday, right before the implosion of Terra, the Fed said in its semiannual report on financial stability that stablecoins are vulnerable to “runs” that could harm owners of the coins.

Securities and Exchange Commission Chairman Gary Gensler has said that the crypto industry is “rife with fraud, scams and abuse” and that his agency needs more authority from Congress — and more funding — to regulate the market.

Britain has unveiled plans to regulate stablecoins as part of a broader plan to become a global hub for digital payments. European Union lawmakers have agreed on draft rules for cryptoassets, but still have to negotiate a final bill.

__

AP Economics Writer Christopher Rugaber and AP Technology Write Michael Liedtke contributed.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

Associated Press

French airport workers strike for higher pay amid inflation

PARIS (AP) — Flights from Charles de Gaulle Airport in Paris and other French airports faced disruptions Friday as airport workers held a strike and protests to demand salary hikes to keep up with inflation. The labor action is the latest trouble to hit global airports this summer, as travel resurges after two years of […]
1 hour ago
A fisherman Ng Koon-hee catches a fish in Tai O village of Hong Kong, Saturday, June 25, 2022. The ...
Associated Press

Hong Kong fishermen keep old ways, 25 years after handover

HONG KONG (AP) — Ng Koon-yau calmly pilots his small fishing boat through the azure waters of the South China Sea. The 79-year-old has been fishing ever since he can remember. Ng and his 76-year-old brother Ng Koon-hee came to Hong Kong from Taishan in Guangdong province, across the border in the Chinese mainland, as […]
1 hour ago
A currency trader walks by the screen showing the foreign exchange rate between U.S. dollar and Sou...
Associated Press

Asian shares mostly lower after pessimistic ‘tankan’ survey

TOKYO (AP) — Asian benchmarks were mostly lower on Friday, echoing a decline on Wall Street, after a quarterly report by Japan’s central bank rekindled worries about the world’s third largest economy. Shares fell in Tokyo, Seoul, Sydney and Shanghai. Markets were closed in Hong Kong for a holiday. Recent data suggest global growth is […]
1 hour ago
FILE - WNBA star and two-time Olympic gold medalist Brittney Griner is escorted to a courtroom for ...
Associated Press

Trial for US basketball star begins in Moscow-area court

MOSCOW (AP) — U.S. basketball star Brittney Griner is set to go on trial in a Moscow-area court Friday, about 4 1/2 months after she was arrested on cannabis possession charges at an airport while traveling to play for a Russian team. The Phoenix Mercury center and two-time U.S. Olympic gold medalist could face up […]
1 day ago
Russian President Vladimir Putin attends a joint news conference with Indonesian President Joko Wid...
Associated Press

Putin’s week: Facing NATO expansion, West’s unity on Ukraine

It has not been an easy week for Russian President Vladimir Putin. He took his first foreign trip since the invasion of Ukraine to shore up relations with troublesome Central Asian allies. He watched as NATO declared Moscow its main enemy and invited Russia’s neighbors Sweden and Finland to join the alliance. And he was […]
1 day ago
A roadside cotton candy vendor drinks water from a plastic pouch as he waits for customers at a wee...
Associated Press

India bans some single-use plastic as part of broader plan

NEW DELHI (AP) — India banned some single-use or disposable plastic products Friday as part of a federal plan to phase out the ubiquitous material in the nation of nearly 1.4 billion people. For the first stage, it has identified 19 plastic items that aren’t very useful but have a high potential to become litter […]
1 day ago

Sponsored Articles

(Courtesy Condor)...
Condor Airlines

Condor Airlines shows passion for destinations from Sky Harbor with new-look aircraft

Condor Airlines brings passion to each flight and connects people to their dream destinations throughout the world.
...
Day & Night Air Conditioning, Heating and Plumbing

Most plumbing problems can be fixed with regular maintenance

Instead of waiting for a problem to happen, experts suggest getting a head start on your plumbing maintenance.
...
Carla Berg, MHS, Deputy Director, Public Health Services, Arizona Department of Health Services

Vaccines are safe if you are pregnant or breastfeeding

Are you pregnant? Do you have a friend or loved one who’s expecting?
Bitcoin tumbles, a stablecoin plunges in wild week in crypto