Risks in the crypto market will spread to stocks and bonds

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2022-05-18 14:54:30

Cryptocurrency market statistics over the past 6 months have blown away 1.7 trillion USD. Compared to the $1.3 trillion loss in the 2007 subprime mortgage crisis, this loss seems to be much heavier. Experts fear that risks in the crypto market will spread to the stock markets, affecting the prices of stocks and bonds.

Cryptocurrency Market Cap Weekly Chart

Stablecoins cannot be maintained at a stable level

The crypto market wobbles before the record price drop of Bitcoin (BTC) in May 2022. Stablecoins – an inherently safer asset than virtual currencies are no exception and cannot be maintained at the claimed “stable” level.

On May 13, UST, the third largest stablecoin by market capitalization, dropped to as low as $0.05. This worries investors.

The largest stablecoin in the market – USDT also dropped quickly to $0.95 on major exchanges like Binance.US and Coinbase on May 12. Unlike UST, USDT managed to recover near 1 USD after Tether announced support to peg the US dollar with legacy projects, including US dollars and government bonds.

Daily UST/USD price chart

The total capitalization of stablecoins is around $150 billion, only a fraction of the total market capitalization of $1.2 trillion. However, they play an extremely important role for crypto traders, as intermediaries to buy tokens on the exchange.

Could the risks from the crypto market spread to the traditional financial markets?

In 2021, rating agency Fitch issued a warning that the rapid growth of USDT could impact short-term credit markets as Tether’s reserves report shows it currently holds a lot of funds. .

Fitch cautions that traders should not sell USDT for cash because of the risk of short-term credit market instability.

Fitch warns traders not to sell USDT for cash
Fitch warns traders not to sell USDT for cash

The cryptocurrency market lost 1.7 trillion dong. The 2007 standard mortgage market lost $1.3 billion. It is very likely that cryptocurrencies will be the catalyst that accelerates the global crash. Risks at the weekend are high.

The increase in interest rates causes many difficulties for the credit market. Thanks to that, Tether can relieve pressure because it is holding $24 billion in commercial paper, $35 billion in treasury bills and $4 billion in corporate bonds.

This speculation is not without foundation as as confirmed by chief technology officer Paolo, Ardoino, Tether has reduced its brand reserve during the past 6 months of school adjustment.

Many analysts fear that the crypto “financial race” could soon spill over into the traditional market, as Fitch warns.

As was the case with Joseph Abate, managing director of Fixed Entry Testing at Barclays, observed that Tether decided to sell the commercial notes and certificates of deposit before maturity to pay the penalty for several months.

As a result, they may be forced to sell off because 44% of their total net holdings are liquid treasury bills.

Robert Armstrong, author of the Financial Times newsletter Unhedged said:

We don’t know what will happen, but the danger is still inevitable. Stablecoins have a total market capitalization of more than $150 billion. If all pegs are broken, then the impact will probably not be limited to the crypto market.

#Risks #crypto #market #spread #stocks #bonds

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