Bitcoin rallied on Friday, jumping above $30,000, despite stablecoin TerraUSD’s ongoing issues that have caused panic in the crypto market.
The world’s largest cryptocurrency, bitcoin, was trading at around $30,262.85 as of 4am ET on Friday, according to CoinGecko data, up 8% over the past 24 hours after falling to levels earlier this week since the end 2020 was no longer achieved.
However, the digital currency is still down 16% over the past seven days.
The recent crypto meltdown, which saw billions of dollars wiped from the market, was triggered in large part by the crash of a controversial stablecoin called TerraUSD, or UST, which is said to be pegged one-to-one to the US dollar.
However, UST has lost its peg and was trading at around 14 cents on Friday, according to data from CoinGecko.
Luna, a token closely associated with UST, is therefore now worth $0.
UST and Luna are connected. UST is called an algorithmic stablecoin, meaning that its $1 peg is meant to be governed by the underlying code. This is fundamentally different from other stablecoins like Tether and USDC, which are backed by real assets like bonds. UST has no real reserves.
The UST algorithm works through a complex system of minting and burning tokens to maintain price stability. A UST token is created by destroying a portion of the associated cryptocurrency Luna to maintain the dollar peg.
But extreme market volatility has tested UST and failed to hold the bond.
Further complications arise from the fact that the Terra blockchain, which underpins UST and Luna, has twice stopped processing transactions in less than 24 hours.
In addition to the UST saga, crypto markets have been hit by a number of other headwinds, including higher inflation and rate hikes, which have led to a sell-off in global stock markets that has taken hold. Cryptocurrency price movements have been correlated with stock markets.
“The Luna/UST situation has hit market confidence quite badly. Overall, most cryptocurrencies are in the red [more than] 50% Combining this with global inflation and growth fears doesn’t bode well for crypto in general,” said Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno.
Even the big bitcoin rebound may not be sustainable.
“In such markets it is normal for prices to jump by 10-30%. These are usually bear market bounces testing previous support levels as resistance,” Ayyar said.