What happens in crypto may not stay in crypto this time
What happens in crypto may not stay in crypto this time
crypto creak. Unfortunately, those fund managers in normal markets such as stocks and bonds that have carefully avoided to concentrate on this free -range asset class must also be careful.
A gutter down from a maximum of $ 68,000 in the Bitcoin price has turned into a flood, partly because of cracks in the so-called stable coins-a misignment, if there was ever one-that glue the market together. At the moment the price has dropped to around $ 27,000.
Yes, crypto brothers before you (again) send me your all-caps letter by email, I am aware that some people are still busy with their investments. It is quite plausible that the market can recover from it, as it did from numerous previous challenging episodes.
Say what you like about crypto, it has a committed fan base and an impressive stamina. But everyone who has entered after the end of 2020 is now under water, and the drivers of this decline seem to be structural. Even some who drank Kool-Aid accept that it can be different this time.
So who cares? Well, it is sad for people, often young and lean means that ignored all warnings and put their savings in lively cryptoma coins, attracted by claims that these code lines could become serious rivals of the dollar and the dollar. It is uncomfortable for the boosters who attempted to convince institutional investors that Bitcoin is a protection against inflation, which is clearly not. The crypto-fanatical president of El Salvador, Nayib Bukele, may have to be downgraded Big plans from Bitcoin City to Bitcoin Town.
The open question is whether this is all important for traditional markets that already suffer from their own wobbling. Will it move stocks and bonds?
Usually what happens in crypto remains in crypto. But large movements can prevail. A search of supervisory law from China almost exactly a year ago triggered a fleeting crash of the Bitcoin price by 30 percent and left observers of German government bonds confused when they saw how their market recovered.
A banker tells me that his hedge fund customers are now watching exactly, with several take the possibility that a great crypto crash, if it occurs, could support the most important of all markets that could support the US state bonds, in turn in the assumption that this is the case would trigger a rush to safer places to park cash.
The question is whether we are heading for a repetition of the 30 percent crash from last year. Signs that Tether is under pressure increase the feeling that this price decline could be The Big One. The stable coin, which acts almost like a central bank for the cryptom market, experienced cracks in its dollar bond after a much smaller stable coin, terrausd, got into the meltdown at the beginning of this week. The two tokens work differently, but the nuance is largely the narcissism of small differences. Either these things can maintain a one-to-one coupling with the dollar, or they cannot. If you can't do that, then the belief system that is based on the crypto is in trouble.
tether may also be important for wider markets via another channel. Its dollar bond is not maintained by algorithmic magic such as terrausd. Instead, it claims to secure the connection with the dollar with good old -fashioned reserves. Details about what is in these reserves are sparse and are not subject to the generally recognized accounting standards. But in theory, they amount to $ 80 billion, which corresponds to the amount of the Tether token in circulation.
Last year the rating agency FIitch warn that if Tether owners fold and try to convert their tokens into real money, this could destabilize the markets for short-term loans in which the company claims to keep many funds.
"The quick growth of the stablecoin emission could have an impact on the functioning of the markets for short-term loans", said the analysts from Fitch and referred to "potential infection risks for assets in connection with the liquidation of stable coin reserves".
The credit markets already fluctuate up under the pressure of a shift in reference interest rates. The idea that Tether, when it gets tough, parts of his alleged $ 24 billion in trading papers, 35 billion dollars on US treasure changes or 4 billion dollar piles of "corporate bonds, funds and precious metals" could not be able to outsource them in these market conditions.
Now it would be a good time for Tether, in more detail and nice to say what is in the box. This would help investors understand where the weaknesses lie and clear up concerns about their support.
Paolo Ardoinino, Chief Technology Officer from Tether, said on Thursday in a Twitter chat that the group was ready to "maintain the bond with the US dollar at all costs". He said Tether recently bought "a ton" US state bonds and was ready to sell them to defend the token.
Dulding investors who have already been trimmed after a turbulent year so far should be careful.
katie.martin@ft.com
Source: Financial Times