Crypto assets were swept up in the large-scale sell-off of risky investments due to concerns over high inflation and rising interest rates, but have started to show signs of stabilizing.
Although the near-term trajectory of the crypto market is difficult to predict, the worst may be over, said Juan Perez, director of trading at Monex USA in Washington.
“Perhaps now that all the headwinds to global growth as well as monetary tightening are clear, perhaps we will start to see some upward swings,” he said.
Bitcoin, the largest cryptocurrency by market value, last rose 4.85% to $29,925, rebounding from a December 2020 low of $25,400 it hit on Thursday.
Despite hitting a high of just under $31,000 on Friday, bitcoin remains well below previous week’s levels of around $40,000 and unless there is a huge rally over the weekend, it’s on track for a record seventh weekly loss.
Stifel Chief Equity Strategist Barry Bannister said bitcoin has yet another downside at around $15,000.
“Bitcoin is also sensitive to GDP, as bitcoin drops when the manufacturing PMI declines, as we expect (through Q3 2022), indicating that a final bitcoin headline decline may still be around. to come,” he added.
Ether, the second-largest cryptocurrency by market cap, also gained, climbing 6.48% to $2,051.
Tether, the largest stablecoin whose developers say is backed by dollar assets, was back at $1, after falling to 95 cents on Thursday.
TerraUSD, however, the stablecoin which is also believed to be pegged to the dollar, continued to languish, at 14 cents, according to data tracker CoinGecko. It has remained unlinked from the US currency since May 9.
The overall market capitalization of the crypto sector rose 6.6% to $1.35 trillion on Friday, according to data from CoinGecko.
So far, the broader financial markets have seen little ripple effect from the cryptocurrency crash. Ratings agency Fitch said in a note on Thursday that weak ties to regulated financial markets will limit the potential for crypto market volatility to cause broader financial instability.
“Crypto is still tiny, and the integration of crypto into broader financial markets is still infinitesimally small,” said James Malcolm, head of FX strategy at UBS.
Crypto-related stocks took a hit with the market crash, but on Friday brokerage Coinbase rose 16% to $67.87, though it was still down 28% on the week.
The selloff has roughly halved the global cryptocurrency market value since November, but the pullback has turned into a panic in recent sessions with pressure on stablecoins.
Stablecoins are tokens pegged to the value of traditional assets, often the US dollar, and are the primary means of transferring money between cryptocurrencies or converting balances into fiat cash.
Cryptocurrency markets were rocked this week by the collapse of TerraUSD (UST), which broke its 1:1 peg to the dollar.
The coin’s complex stability mechanism, which involved balancing with a floating cryptocurrency called Luna, stopped working when Luna dipped near zero.
“For these types of stablecoins, the market must have confidence that the issuer holds sufficient liquid assets that it would be able to sell during times of market stress,” Morgan Stanley analysts said in a note. of research.
The operating company of another stablecoin called Tether said it has the necessary assets in treasury bills, cash, corporate bonds and other money market products.
But stablecoins are likely to face further tests if traders keep selling, and analysts fear the stress will spill over into money markets if there are more and more sell-offs.
Fitch said cryptocurrencies and digital finance could face “significant negative repercussions” if investors lose confidence in stablecoins, as many regulated financial entities have increased their exposure to the sector in recent months.