After Terra Crash Aftershock, Tether and Bitcoin 'Wavered' Then Recovered

Janet Yellen: "Not a Real Threat to Financial Stability"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The turmoil in the cryptocurrency market, which began with the price collapse of the Korean cryptocurrencies Luna and TerraUSD (UST), continues. The collapse of the dollar peg of the representative stablecoin Tether and Bitcoin’s price falling to its lowest in 16 months have caused the market to stagger.

On the 12th (local time), according to Bloomberg and CNBC, Terraform Labs, the issuer of Luna and TerraUSD, halted and then restarted the system to prevent attacks on the blockchain network where Luna and Terra are traded. This measure came after the recent price crash of Terra and Luna. According to the cryptocurrency exchange Coinbase, Luna has currently plummeted by 99% to the cent range, and the stablecoin Terra, designed to be pegged to a value of 1 dollar, has dropped to 39 cents.

CNBC reported that $200 billion was wiped out from the cryptocurrency market in just one day. The turmoil that started with Terra and Luna shook the world’s largest stablecoin Tether and the largest cryptocurrency Bitcoin, escalating anxiety about the cryptocurrency market itself to an extreme level.

Tether is a stablecoin pegged 1:1 to the dollar, but on this day its price briefly fell to 94 cents. Bitcoin’s price dropped to the $25,000 range, falling below $27,000 for the first time since December 26, 2020. Ethereum, the world’s second-largest cryptocurrency after Bitcoin, also fell to $1,704 per coin, marking its lowest level since June last year.

Currently, after the turmoil, Tether has recovered its peg, and Bitcoin has also recovered close to $30,000. The market is paying close attention to whether the market impact caused by Terra and Luna will continue. Matt Maley, Chief Market Strategist at U.S. asset management firm Miller Tabak + Co., said, “People are still nervous, but the selling pressure is weakening,” and evaluated, “Investors will remain tense for several days, but the supply and demand equation has stabilized again.”

Some have raised concerns that this turmoil in the cryptocurrency market could impact the broader financial market. Regarding this, U.S. Treasury Secretary Janet Yellen appeared before Congress on the same day and said, “I do not see this turmoil as a level that poses a material threat to financial stability,” but added, “However, they (stablecoins) are growing rapidly and are showing risks similar to those we know well related to bank runs.” She emphasized that as cryptocurrency usage increases rapidly, “a comprehensive framework must be established to ensure there are no regulatory gaps.”