Crypto Risk of $1.9T Disappears, Spreads to Stocks, Bonds – Stablecoin Tether Becomes the Focus

The cryptocurrency market has $1.9 trillion lost It surged to an all-time high six months later. Interestingly, these losses were larger than those incurred during the subprime mortgage market crisis in 2007 — about $1.3 trillion — sparking fears that crypto market risks will spill over into traditional markets, hurting stocks and bonds, among others.

Weekly chart of cryptocurrency market capitalization. Source: TradingView

Stablecoins are not very stable

Bitcoin (bitcoin) prices have caused a sell-off frenzy across the crypto market.

Unfortunately, the bearish sentiment was not even spared stablecointhe so-called U.S. dollar cryptocurrency equivalent, cannot remain as “stable” as they claim.

For example, TerraUSD (UST), which was once the third largest stablecoin in the industry, lost its peg to the dollar Earlier this week, it fell to a low of $0.05 on May 13.

UST/USD daily price chart. Source: TradingView

At the same time, the largest stablecoin by market capitalization, Tether (USDT), a brief fall It fell to $0.95 on May 12. But unlike TerraUSD, Tether managed to recover close to $1, largely because it claims to be backing its peg to the U.S. dollar with good old-fashioned reserves, including real dollars and government bonds.

Encryption Spill Risk

But that’s where the trouble began, according to a warning issued by ratings agency Fitch last year.The agency is concerned that Tether’s rapid growth could have an impact on short-term credit markets where it holds large amounts of money, according to the company’s disclosed reserves breakdown. here.

Short-term credit markets could be destabilized if traders decide to dump their Tether, the cryptocurrency space’s most popular dollar-pegged stablecoin, for cash, Fitch famous.

Credit markets are already struggling under the weight of rising interest rates. Tether’s holdings of $24 billion worth of commercial paper, $35 billion worth of U.S. Treasuries and $4 billion worth of corporate bonds could put further pressure on it.

Signs are already visible.For example, Tether has Reduce commercial paper reserves Its CTO, Paolo Ardoino, confirmed on May 12 during the cryptocurrency correction over the past six months.

As a result, many analysts are concerned that a “financial run” could soon spread to traditional markets, based on Fitch’s warning last year.

These include Joseph Abarth, managing director of fixed income research at Barclays, who believes Tether’s decision to sell its commercial paper and certificate deposit assets before maturity could mean paying months of penalty interest.

As a result, they may be forced to sell their liquid Treasury bills, which make up 44% of their net holdings.

related: what happened? Terra debacle exposes flaws plaguing the crypto industry

“We don’t know what will happen, but the danger cannot be generalized,” Opinion Robert Armstrong, author of the FT’s unhedged newsletter, added:

“The total market cap of stablecoins exceeds $150 billion. If all pegs break — and they could — there will be ripples far beyond cryptocurrencies.”

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