Bitcoin staged a modest recovery to trade at around $30,000, extending a period of relative market calm after the collapse of a closely watched stablecoin that troubled digital assets in the past week.
The largest cryptocurrency advanced by over 3% on Sunday to $30,300 in New York trade. Ether, the second-biggest token, rose by over 4% while coins like Avalanche and Cardano posted even larger gains.
Bitcoin dipped to a low of $25,425 last week after the TerraUSD algorithmic stablecoin unraveled, throwing the entire ecoystem that supports it into disarray.
At its height, the market panic engulfed the $76bn (€73bn) stablecoin Tether, a key cog in cryptoassets that briefly dipped from its dollar peg.
“We have witnessed the rapid decline of a major project, which sent ripples across the industry, but also a newfound resiliency in the market that did not exist during the last market downswing,” Changpeng Zhao, chief executive officer of crypto exchange Binance Holdings, tweeted on Sunday.
Even after Sunday’s recovery, the total market value of cryptocurrencies has dropped by about $350bn in the past week to roughly $1.38 trillion, according to data from CoinGecko. Bitcoin is almost 60% off its November all-time high.
While crypto markets may have digested the worst of the TerraUSD fallout, the asset class faces other challenges -- most notably, rising global interest rates and tighter liquidity conditions.
US Federal Reserve chair Jerome Powell this week reaffirmed that the central bank will likely raise interest rates by a half-point at its next two meetings.
“I remain long-term bullish, especially on Bitcoin,” said Vasja Zupan, president of cryptocurrency exchange Matrix.
Last week’s undoing of the TerraUSD algorithmic stablecoin and its sister token Luna has ramifications for all of crypto.
First, there’s the immediate impact: The rapid collapse of a once-popular pair of cryptocurrencies sent a ripple effect across the industry, contributing to plummeting coin prices that wiped hundreds of billions of market value from the digital-asset market and stoked worries over the potential fragility of digital-asset ventures.
Then there are the knock-on effects.
In addition to delivering punishing losses to individual users and investment firms, the spectacular failure of a market darling like Terra threatens to have a cooling effect on the fundraisings that have jacked up crypto startups’ valuations in recent years.
Venture capitalists who have long been some of the industry’s biggest cheerleaders may not have quite the same risk tolerance now -- especially those directly caught in the crossfire.
“It’s something the scale of which crypto has really never seen in terms of a top-five project just absolutely imploding,” said Matt Walsh, founding partner of Castle Island Ventures, a blockchain-focused VC firm.
There were some winners in this scenario -- like the investment firms including F9 Research that shorted TerraUSD.