Bitcoin falls further below the $30,000 mark as investors flee the cryptocurrency.
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Bitcoin fell below $27,000 on Thursday for the first time in more than 16 months, as the crypto market extended losses amid fears of rising inflation and the demise of a controversial stablecoin project.
According to Bitstamp data, the bitcoin price dropped to as low as $26,595.52 on Thursday morning. That marks the first time bitcoin has dropped below $27,000 since December 30, 2020.
As of 1:30 a.m. ET, bitcoin is trading at $27,061, down 15% over the past 24 hours.
Ether, the second largest digital coin, fell as low as $1,789 per coin. This is the first time the token has dropped below the $2,000 mark since July 2021.
Ether was last down 23% at the price of $1,852.
Investors are fleeing crypto at a time when the stock market has plunged from the peak of the coronavirus pandemic due to concerns about skyrocketing prices and a deteriorating economic outlook.
US inflation data released on Wednesday showed that prices of goods and services rose 8.3% in April, higher than analysts expected and close to a 40-year high.
Also weighing on traders’ minds is the demise of the stablecoin protocol associated with Terra.
TerraUSDor UST, is supposed to reflect the value of the dollar, but it plummeted below 30 cents on Wednesday, shaking investors’ confidence in the so-called decentralized finance space.
Stablecoins are like the bank accounts of the crypto world that are barely regulated. Cryptocurrency investors often look to them for safety in times of market volatility.
But UST, an “algorithmic” stablecoin backed by code rather than cash held in reserve, has struggled to maintain a steady value as holders have attempted to exit en masse.
As of Thursday morning, UST was trading at around 62 cents, still well below the expected $1 close.
Moonlightanother Terra token that has a floating price and is meant to absorb UST price shocks, has erased 97% of its value in 24 hours, and its final value is only 30 cents – even lower than UST.
Investors are scared about the implications for bitcoin. The Luna Foundation Guard – a fund founded by founder Terra Do Kwon – has amassed a multi-billion dollar pile of bitcoins to help support UST in times of crisis.
The concern is that the Luna Foundation Guard will sell a large portion of its bitcoin holdings to fund its ailing stablecoin. It’s a risky gamble, especially since bitcoin itself is an incredibly volatile asset.
Adding to investors’ fears on Thursday was a drop in the value of tether, the world’s largest stable coin. At one point, the token fell below 99 cents. Economists have long feared that tether might not have the reserves needed to underpin its dollar rate in the event of a mass withdrawal.