On Friday, Bitcoin and other major cryptocurrency counterparts regained some positions, ending a week of serious losses in the digital asset market.
The world’s largest cryptocurrency by market capitalization rose nearly 5 percent in early trading and rose above $ 30,000, while other big names Ethereum and Solana achieved similar success.
But the jump in prices will not be a consolation for speculators who are heavily exposed to cryptocurrencies after a long period of sales, and little evidence that this morning’s momentum will be maintained amid worries facing the market.
President Salvador Bukele’s decision to start buying cryptocurrencies has proven to be a key motivating factor for the price of bitcoin, as it reached a historic high last year, but since then investors have suffered heavy losses.
Despite a 9.5 percent jump in the last 24 hours, according to Coinbase as of 10 a.m., bitcoin is still down nearly 15% over the past week and more than 20% over the past month.
The value of bitcoin has more than halved from a historic high of $ 64,500 per coin last November.
A similar pattern is observed throughout the crypto market, especially over most of the market capitalization spectrum.
Victoria Scholar, head of investment at Interactive Investor, said: “Recent price actions are an important reminder of the wild fluctuations in the crypto market, which on the one hand can generate huge profits for traders and investors, but can also lead to harmful strata ».
Crypto assets have sold off along with losses in the stock market, especially in the technology sector, while it is also not immune to inflation concerns and the potential for a global economic downturn.
Perhaps more worrying for long-term cryptocurrency investors are concerns about the future regulatory landscape and significant instability in the so-called “stablecoin” market.
Theoretically, stablecoins are pegged to the value of traditional assets, usually the US dollar, and are mainly used to move money between cryptocurrencies or to convert balances into fiat cash.
However, in some cases, these tokens have fallen well below the value of the dollar.
Earlier this week, TerraUSD broke the 1: 1 peg to the dollar as its stability mechanism – using another digital token – failed under sales pressure. At the time of writing, it is trading at $ 0.10 or 14 pence.
Meanwhile, Tether’s largest stablecoin, which is believed to be backed by real dollars, fell to $ 0.95 on Thursday.
While the volatility of stablecoin prices is seen by some as an existential crisis for the wider market, proponents of the space remain optimistic about the long term.
Marcus Sotiriou, an analyst at British digital asset broker GlobalBlock, said that while some called the crypt a “Lehman Brothers moment”, he was “optimistic” that the fall of TerraUSD would not be “so catastrophic”.
He added: “However, the USDT will collapse and we have seen the largest stablecoin fluctuate in market capitalization over the past 24 hours, reaching a 15 per cent deviation from pegging to $ 1.
“Because of this deviation, its binding was restored … at the time of writing. Although the permanent disconnection of the USDT peg is a risk worth noting, I am confident that the USDT peg will be restored, as I think Tether has sufficient support in its reserves and its mechanisms are safer than UST stablecoin. .
“Despite the incredibly bearish sentiment in retail, it was announced that Citi, BNY Mellon and Wells Fargo had invested in the crypto trading firm Talos in a $ 105 million funding round.
“This indicates that among the constant fears in the market in the crypto space are established trade organizations. It is a signal of where space is moving in the long run, regardless of short-term volatility. ”
However, traditional analysts look less optimistic.
Suzanne Streeter, a senior investment and markets analyst at Hargreaves Lansdown, said: “Crypto fans, pumped into a false sense of security amid a sharp rise in prices during the pandemic, are now facing a rough awakening when assets fall all over.
“Hopes that bitcoin would act as a hedge of inflation quickly faded as the cryptocurrency lost more than half of its value after its November high as consumer prices rose.
“We have repeatedly received warnings from the financial observer, the FCA, that investors risk losing all their money if they invest in the crypto-wild west, and the red flags he waved proved prudent given the fall of the crypto roller coaster in the current time is on.
“This latest dive into the wheel of fortune demonstrates that cryptocurrency speculation is an extremely high risk and not suitable for the vast majority of people.
“The value of cryptocurrencies is entirely driven by speculation that in the future they will play a significant role in the financial system. This makes it impossible to attribute a reliable estimate of their current or future price or to challenge it ”.
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