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Crypto Sentiment Tethered To Stablecoin Woes; Bitcoin Falls Below $27K

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Crypto markets continued to be roiled by stablecoin-triggered volatility, causing overall crypto market capitalization to drop to $1.21 trillion, from $1.37 trillion, early on Wednesday. Close on the heels of the de-pegging of the algorithmic stablecoin TerraUSD (UST), Tether (USDT), the biggest stablecoin by market capitalization briefly lost its peg to the Dollar, falling to $0.9485.

Tether has currently recovered most of its losses to trade at $0.9936. Market capitalization is at $82 billion, versus $83 billion as on May 1, 2022.

Market capitalization of stablecoins decreased 0.51 percent to $170 billion. Market dominance however increased to 14.03 percent, from 12.6 percent a day earlier. The top 5 stablecoins viz Tether (USDT), USD Coin (USDC), Binance USD (BUSD), Terra USD (UST) and Dai (DAI), currently constitute 95 percent of the overall stablecoin market.

TerraUSD (UST) is currently trading at $0.5999, up 56 percent on an overnight basis. It has slipped to rank 14 overall, from rank 10 on May 8.

Terra (LUNA) is currently trading at $0.0293, down 99 percent on an overnight basis. It has slipped to rank 182 overall, from rank 9 on May 8.

Exacerbating the general anxiety surrounding cryptocurrencies was the SAB 121 disclosure made by Coinbase Global in its quarterly Form 10 Q. The SAB 121 requires entities undertaking certain digital asset custodial activities to make specified disclosures regarding the safeguarding liability and asset, including fair values, obligation regarding security of assets as well as risks thereof.

In its Q1 2022 filing, Coinbase inter alia disclosed that "because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors". Though CEO Brian Armstrong clarified that Coinbase has no risk of bankruptcy, the disclosure did cause panic among users.

Bitcoin touched a low of $26,350.49 in the past 24 hours. It is currently trading at $28,387.07, down 3 percent on an overnight basis and 28 percent on a weekly basis. Bitcoin dominance has increased to 44.5 percent from 43.2 percent a day ago.

Ether is trading with an overnight loss of more than 10 percent, at $1,944.25. ETH had earlier plunged to $1,748.30 in the past 24 hours. Ethereum's dominance has however decreased to 19.3 percent, from 20.5 percent a day earlier.

Among the top 20 cryptos, BNB (BNB), Wrapped Bitcoin (WBTC) and UNUS SED LEO (LEO) are trading with losses of less than 10 percent.

XRP(XRP), Solana (SOL), Dogecoin (DOGE), Polkadot (DOT), Avalanche (AVAX) and Litecoin (LTC) are trading with losses between 10 and 20 percent.

Cardano (ADA), Shiba Inu (SHIB) and Polygon (MATIC) have declined more than 20 percent.

TRON (TRX) is trading 1.5 percent higher.

Crypto markets are undoubtedly in difficult terrain ever since the Terra fiasco unfolded. There is also a lingering anxiety on what would be the likely regulatory response to the situation. Currently, 14 percent of the overall crypto market is constituted by stablecoins. Also, 3 of the top 10 cryptocurrencies are stablecoins.

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