According to CoinMarketCap, the cryptocurrency market is in a state of panic as digital assets have lost $800 billion in market value over the past month. The shift in sentiment comes as investors reprice risky assets ahead of much tighter monetary policy around the world.
In its latest round of volatility, Bitcoin fell to $26,725, hitting its lowest level in ten months.
Other crypto assets also fell. The second-largest cryptocurrency in the world, Ethereum, hit a low of $2021, which is also the lowest level in ten months. Solana traded below $50.
However, the most volatile digital asset on Wednesday was still the algorithmic stablecoin TerraUSD (UST). The stablecoin fell to around 30 cents at the start of the US session after it broke a presumed 1:1 peg against the US dollar earlier this week.
In a Twitter thread, Terraform Labs co-founder Do Kwon said he has a recovery plan that includes raising TerraUSD's external funding and securing it with collateral — backed by reserves to maintain its 1:1 peg to the dollar.
The volatility of the UST affects the wider crypto market. There are fears that Luna Foundation Guard — a non-profit organization that supports the Terra blockchain ecosystem — will have to sell significant amounts of the Bitcoin it holds as reserves. This was stated by GlobalBlock analyst Marcus Sotiriou.
Glassnode data showed that 80,000 Bitcoins were removed from exchanges, proving that the Luna Foundation Guard was selling its Bitcoins in order "to raise funds to push the price of UST back up," Sotiriou added.
Bitcoin Risk:
Bitcoin has been on a massive swing lately, losing over 50% from its November all-time highs.
The question on the minds of many investors right now is how risky Bitcoin is below the $30,000 level it broke again on Wednesday.
Bitcoin plunged below $30,000 after an inflation report sent the Nasdaq and all risky assets down.
This is a very nervous time in the cryptocurrency markets following the collapse of the controversial UST stablecoin and most of the institutional crypto investors who invested last year.
Some analysts believe that Bitcoin is becoming less risky as markets begin to appreciate at the end of the Federal Reserve's rate hike cycle.
However, according to Bloomberg Intelligence senior commodity strategist Mike McGlone, in the long term, Bitcoin will come out ahead, first sinking to the bottom, then creating a base around $30,000, and then heading towards $100,000.
There has also been some pressure on the crypto space in terms of regulation. U.S. Treasury Secretary Janet Yellen commented on the loss of the UST stablecoin from its dollar peg, saying an appropriate structure is needed. Noting that legislation regarding the regulation of cryptocurrencies would be appropriate this year.
The US Securities and Exchange Commission has also warned that crypto transactions are subject to reportable securities-based exchanges. SEC Chairman Gary Gensler said that if an exchange is based on a crypto asset, which is a security, then that exchange is safe. Thus, the rules of regulation apply to them.