Bitcoin Snaps 5-Day Slide After Briefly Crashing Below $30,000

Bitcoin rebounded from a swoon below $30,000 as a selloff in stocks eased and a bout of calm washed across global markets.

The world’s largest digital token snapped a five-day slide that had cut its price by more than 20%. Bitcoin added as much as 5.4% on Tuesday before giving up some gains and trading at around $31,623 as of 2:35 p.m in New York. Ether at one point climbed 7.2%, while coins like Solana and Avalanche were also in the green. The crypto recovery came as equities mostly advanced across the U.S. and Europe, highlighting how the two asset classes are trading in tandem.

The TerraUSD algorithmic stablecoin continued to trade below $1 after de-pegging from the dollar over the weekend, adding to the market volatility.

“The main reasons as to why Bitcoin would continue to struggle are rooted in both the equities market as well as the LUNA foundation,” said Nick Mancini, director of research at crypto sentiment analytics platform Trade The Chain.

Bitcoin’s recent plunge has taken it to levels last seen in the middle of 2021, reversing a bull market that peaked in November. Whether the calm will last is an open question. Tightening monetary policy to combat runaway inflation is curbing liquidity, creating a formidable obstacle for speculative assets like cryptocurrencies.

Michael Novogratz, the billionaire cryptocurrency investor who leads Galaxy Digital Holdings Ltd., warned that he expects things to get worse before they get better. Among challenges facing digital assets is that they’re increasingly trading in line with technology stocks, which are getting hammered by rising interest rates.

“Crypto probably trades correlated to the Nasdaq until we hit a new equilibrium,” Novogratz said on Galaxy’s first-quarter earnings call on Monday, adding that investors may see “a very choppy, volatile and difficult market for at least the next few quarters before people are getting some sense that we’re at an equilibrium.”

Issuers of conventional stablecoins like Tether’s USDT or Circle’s USDC maintain that their tokens are backed by “real” assets like cash or highly rated bonds on a 1-to-1 basis. These coins hold their peg because, the theory goes, they can be readily exchanged for cash or highly liquid cash equivalents. By contrast, algorithmic stablecoins attempt to hold their value through a combination of instructions encoded in software programs and active treasury management. UST -- which functions in tandem with a related token, Luna -- is the most popular and controversial of these kinds of tokens.

In the case of Terra’s stablecoin, if its price falls below $1, traders are incentivized to swap units of UST for Luna, which removes the former from circulation. Similarly, software programs are triggered to do the same. If the price rallies above $1, the mechanism applies in reverse - remove Luna tokens from circulation to create equivalent, new units of UST. But over the weekend, all of those mechanisms stopped working and UST lost its dollar peg, while Luna also slid in value.

Do Kwon, the founder of Terraform Labs, which powers the Terra blockchain, is moving to shore up the stablecoin. Luna Foundation Guard, the association created to support the decentralized token and Terra blockchain, said it will issue loans worth about $1.5 billion in Bitcoin and TerraUSD to help strengthen TerraUSD’s peg.

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