Bitcoin and other major cryptocurrency peers recovered some ground on Friday, capping a week of heavy losses across the digital asset market.
The world’s largest cryptocurrency by market cap was up nearly 5 per cent in early trading to move back above $30,000, while fellow big names ethereum and solana made similar gains.
But the jump in prices will come as little consolation to speculators heavily exposed to cryptocurrencies after a sustained period of selling, with little evidence this morning’s momentum will be maintained amid worries facing the market.
The decision by El Salvador’s President Bukele to start buying the cryptocurrency proved a key motivator for bitcoin’s price as it hit last year’s all-time-high, but investors have since been hit with heavy losses
Despite a 9.5 per cent jump in the past 24 hours, according to Coinbase figures as of 10am, bitcoin remains down nearly 15 per cent over the last week and more than 20 per cent over the last month.
Bitcoin’s value has more than halved since its all-time-high of $64,500 a coin last November.
A similar pattern is seen throughout the crypto market, particularly at the larger end of the market cap spectrum.
Victoria Scholar, head of investment at Interactive Investor, said: ‘Recent price action serves as an important reminder of the wild swings that are characteristic of the crypto market that can on the one hand can create outsized gains for traders and investors but can also lead to damaging losses.’
Cryptoassets have sold off alongside equity market losses, particularly within the tech sector, while it has also not been immune from concerns about inflation and the potential for a global economic slowdown.
Perhaps more troubling for long-term cryptocurrency investors are concerns about the future regulatory landscape and substantial instability in the so-called ‘stablecoin’ market.
In theory, stablecoins are pegged to the value of traditional assets, typically the US dollar, and are primarily used to move money between cryptocurrencies or to convert balances to fiat cash.
However, these tokens have fallen far below the value of the dollar in some cases.
TerraUSD broke its 1:1 peg to the dollar earlier this week, as its stability mechanism – using another digital token – failed under selling pressure. At time of writing it is trading at $0.10 or 14p.
Meanwhile, the largest stablecoin Tether – which is supposedly backed by real dollars – fell as low at $0.95 on Thursday.
While the instability in stablecoin prices is viewed by some as an existential crisis for the broader market, advocates of the space remain upbeat regarding longer term prospects.
Analyst at UK-based digital asset broker GlobalBlock Marcus Sotiriou said that while some have called this crypto’s ‘Lehman Brothers’ moment’, he is ‘optimistic’ that TerraUSD’s fall will not prove to be ‘that catastrophic’.
He added: ‘A collapse of USDT would be though, and we have seen the largest stablecoin by market cap wobble over the past 24 hours, reaching as much as a 15 per cent deviation from the $1 peg.
‘Since this deviation its peg has been restored…at the time of writing. Although USDT becoming de-pegged persistently is a risk worth noting, I am confident that the USDT peg will be restored as I think Tether have sufficient backing in their reserves, and its mechanics are safer than the UST stablecoin.’
‘Despite retail sentiment being incredibly bearish, it has been announced that Citi, BNY Mellon and Wells Fargo have invested in crypto trading firm Talos, in a $105 million funding round.
‘This shows that amongst the ongoing fear in the market, established trad-fi institutions are entering the crypto space. It is a signal of where the space is headed in the long-term, regardless of short-term volatility.’
However, traditional analysts appear less optimistic.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: ‘Crypto fans, lulled into a false sense of security amid sharp price rises during the pandemic, are now facing a rude awakening with assets plunging across the board.
‘Hopes that Bitcoin would act as an inflation hedge have fast evaporated as the cryptocurrency has lost more than half its value since its November high, as consumer prices have soared.
‘We’ve had warnings time and time again from the financial watchdog, the FCA that investors risk losing all their money if they invest in the crypto wild west and the red flags it’s been waving have been shown to be prescient given the downwards rollercoaster ride crypto is currently on.
‘This latest plunge in the wheel of fortune demonstrates that speculating in cryptocurrencies is extremely high risk and are not suitable for the vast majority of people.
‘Cryptocurrency values are driven entirely by the speculation that in the future they will have a meaningful role in the financial system. This makes it impossible to attribute a sound valuation to, or to make a call on, their current or future price.’