MUMBAI (BLOOMBERG) - Bitcoin rebounded from a swoon below US$30,000 on Tuesday (May 10) as a sell-off in stocks moderated and a bout of calm washed across global markets.
The world’s largest digital token added as much as 5.4 per cent to US$32,636.08 as at 7.48am in London (2.48pm Singapore time). Ether at one point climbed 6.4 per cent, while coins like Solana and Avalanche were also in the green.
Bitcoin is still down more than 50 per cent since hitting a record of almost US$69,000 in November. It has underperformed both global stocks and gold over the course of 2022 so far.
Bitcoin’s earlier plunge had taken it to levels last seen in the middle of 2021. 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.
For instance, Mr Michael Novogratz, the billionaire cryptocurrency investor who leads Galaxy Digital Holdings, warned that he expects things to get worse before they get better.
“Crypto probably trades correlated to the Nasdaq until we hit a new equilibrium,” Mr 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 are at an equilibrium”.
Bitcoin’s correlation with United States stocks is around record levels, and the token pushed higher as S&P 500 and Nasdaq 100 equity futures stabilised and then rallied on Tuesday.
Stablecoin drama
The crypto market is also monitoring TerraUSD, an algorithmic stablecoin that aims to maintain a one-to-one peg to the dollar.
The peg appeared to fray, with the token’s value falling below 70 US cents on Tuesday before climbing back above 92 US cents.
Mr Do Kwon, the founder of Terraform Labs, which powers the Terra blockchain, is moving to shore up the stablecoin.
Luna Foundation Guard (LFG), the association created to support the decentralised token and Terra blockchain, said it will issue loans worth about US$1.5 billion (S$2.1 billion) in Bitcoin and TerraUSD to help strengthen TerraUSD’s peg.
‘Watching carefully’
Mr Kwon captured the attention of the crypto world earlier this year by pledging to buy as much as US$10 billion in Bitcoin to prop up Terra.
Mr Steven Goulden, senior research analyst at crypto market maker Cumberland DRW, said in an e-mail: “We are watching carefully to see how the market fares over the next 24 hours... Including whether mechanisms being introduced to help increase reliance, such as LFG lending out Bitcoin to (over-the-counter) trading firms, will be enough to hold in times of deep stress or if we need additional stabilisation mechanisms.”
