A stablecoin breaks the buck (dem10/Getty Images)
Not so stable after all… Stablecoins are causing crypto chaos. Refresher: stablecoins are cryptocurrencies whose value is (theoretically) pegged to another asset, like the USD. But this week TerraUSD (UST), the third-largest stablecoin, was unpegged from its $1 value and fell to $0.62. Investors then sold UST (think: crypto bank run), sending jolts through the market.
Crypto’s confidence crisis… goes beyond stablecoins. The crypto market has lost nearly $2T in capitalization from its November peak. Even bitcoin is down 50% since then, which has led analysts to question its status as “reserve currency” for other coins like UST.
Most cryptos were minted in calm weather… Now they’re caught in the path of two storms: regulation and recession. UST’s “buck-breaking” moment showed that even so-called stable coins are risky, prompting Treasury Secretary Janet Yellen to call — again — for new crypto rules. Plus, economists predict a recession’s coming, which could cause un-tested coins like UST to lose more value. Investors may get caught in the rain: most short-term crypto investors are already underwater, and more than half of bitcoin holders are in the red.