NEW YORK (AP) – It was a crazy week in encryption, even for encryption standards.
Bitcoin collapsed, stablecoins were anything but stable and one of the companies with the highest profile in the crypto industry lost one third of its market value.
Here’s a look at some of the major cryptocurrency developments this week:
The price of bitcoin fell to about $ 25,420 this week, its lowest level since December 2020, according to CoinDesk. It stabilized at around $ 30,000 on Friday, but is still less than half the price of bitcoin that reached last November.
Some proponents of bitcoin have said that the digital currency could protect its holders from inflation and act as a hedge against the stock market crash. Lately neither is done. Consumer inflation rose 8.3% in April from a year earlier, most recently in the early 1980s. As the Federal Reserve raises interest rates aggressively to try to reduce inflation, investors are dumping risky assets, including stocks and cryptocurrencies. The S&P 500 is down more than 15% this year. Bitcoin has fallen about 37% to date.
Other cryptocurrencies did just as badly. Ethereum has fallen 44% and dogecoin, a cryptocurrency favored by Tesla CEO Elon Musk, has lost about half its value.
COLLAPSE OF FIXED CURRENCIES
Stablecoins have been considered a safe haven among cryptocurrencies. This is because the value of many stablecoin is tied to a government-backed currency, such as the US dollar, or precious metals such as gold.
But this week, one of the most widely used stablecoins, Terra, experienced the cryptocurrency equivalent of a bank run.
Terra is a stablecoin in a cryptocurrency ecosystem known as Terra Luna. Terra is a stablecoin algorithm, which means that its offer is adjusted through complex buying and selling to keep its bond at $ 1. Terra was also fueled by an incentive program that gave its owners high returns on their Terra. The Luna was the currency to be used in the ecosystem to buy and sell assets and at its peak was worth more than $ 100.
Although Terra developers said its algorithms would stop stablecoin, they decided to stop it further by owning bitcoin.
Terra’s problems began with a combination of hundreds of millions, perhaps billions, of dollars in withdrawals from Anchor, a platform that supported stablecoin. Combined with general concerns about cryptocurrencies and the fall in the price of bitcoin, Terra has begun to lose its hold on the dollar. Terra’s bitcoin was also worth less than they paid for it, and selling these bitcoins on the market caused bitcoin prices to fall even further.
Terra developers’ attempts to boost liquidity have failed. On Friday, Terra had fallen to 12 cents and Luna was trading at less than one tenth of a cent.
Coinbase lost about a third of its value this week, during which cryptocurrency trading platform reported that monthly active users fell 19% in the first quarter amid falling cryptocurrency values.
Investors were running out of money even before Coinbase reported a quarterly loss of $ 430 million. Shares closed at $ 67.87 on Friday. On the day of the initial public offering just 13 months ago, the shares reached $ 429 each.
In a letter to shareholders, Coinbase said it believes current market conditions were not permanent and that it remained focused on the long-term basis, prioritizing product development. While most Wall Street analysts expect Coinbase to weather the storm, they also warn that increased cryptocurrency regulation could hamper the company’s growth.
There has been a lot of talk about setting up cryptocurrencies, but little about action.
Finance Minister Janet Yellen, responding to cryptocurrency market volatility this week, said Thursday that the US needed a regulatory framework. to protect against the risks surrounding cryptocurrencies and fixed currencies.
In March, Federal Reserve Chairman Jerome Powell said new forms of digital money, such as cryptocurrencies and stablecoins, posed risks to the US financial system and would require new rules. for consumer protection. This Monday, just before the collapse of Terra, the Fed said in its half-yearly report on financial stability that stablecoins are vulnerable to “runs” that could hurt currency owners.
Securities and Exchange Commission Chairman Gary Gensler said the crypto industry was “full of scams, fraud and abuse” and that his company needed more power from Congress – and more funding – to regulate the market.
Britain has unveiled plans to regulate stablecoins as part of a larger plan to become a global digital payment hub. European Union lawmakers have agreed on draft rules for cryptocurrencies, but you still have to negotiate a final account.
AP Economics author Christopher Rugaber and AP Technology Write Michael Liedtke contributed.