Bitcoin tumbles, a stablecoin tumbles in a wild week in crypto

Bitcoin tumbles, a stablecoin tumbles in a wild week in crypto

NEW YORK (AP) – It’s been a wild week for crypto, even by crypto standards.

Bitcoin plummeted, stablecoins were far from stable, and one of the crypto industry’s best-known companies lost a third of its market value.

Here’s a look at some key cryptocurrency developments this week:


According to CoinDesk, the price of bitcoin fell to around $25,420 this week, its lowest level since December 2020. It stabilized at around $30,000 on Friday, but that’s still less than half the price it hit last November has achieved.

Some Bitcoin proponents have said that the digital currency could protect its holders from inflation and serve as a hedge against a stock market decline. It hasn’t been done lately either. Consumer-level inflation rose 8.3% yoy in April, a level last seen in the early 1980s. As the Federal Reserve aggressively raises interest rates to try to curb inflation, investors are selling off risky assets, including stocks and crypto. The S&P 500 is down more than 15% this year. Bitcoin is down about 37% year-to-date.

Other cryptos have fared just as badly. Ethereum is down 44% and Dogecoin, a cryptocurrency favored by Tesla CEO Elon Musk, has lost about half of its value.


Stablecoins are considered a safe haven among cryptocurrencies. That’s because the value of many stablecoins is pegged to a government-backed currency like the US dollar or precious metals like gold.

But this week, one of the most widely used stablecoins, Terra, experienced the cryptocurrency equivalent of a run on the bank.

Terra is a stablecoin in a cryptocurrency ecosystem called Terra Luna. Terra is an algorithmic stablecoin, meaning its supply is adjusted through complicated buying and selling to keep its peg at $1. Terra was also fueled by an incentive program that gave its owners high yields on their Terra. Luna was the coin to be used in the ecosystem to buy and sell assets and at its peak it was worth more than $100.

Although Terra’s developers said their algorithms would support the stablecoin, they decided to continue supporting it with bitcoin holdings.

Terra’s troubles began with a combination of withdrawals of hundreds of millions, maybe billions of dollars from Anchor, a platform that backed the stablecoin. Combined with general cryptocurrency worries and the drop in Bitcoin price, Terra began to lose its peg to the dollar. The bitcoin that Terra owned was also worth less than they paid for it, and the sale of those bitcoins on the market caused bitcoin prices to fall even further.

Efforts by Terra developers to shore up liquidity failed. As of Friday, Terra was down to 12 cents and Luna was trading at less than a ten-thousandth of a cent.


Coinbase shed about a third of its value this week, during which the cryptocurrency trading platform reported that monthly active users fell 19% in the first quarter amid the crypto values’ decline.

Investors were already running for the exits even before Coinbase reported a quarterly loss of $430 million. Shares closed at $67.87 on Friday. On the day of the IPO just 13 months ago, shares hit $429 each.

In a letter to shareholders, Coinbase said it believes current market conditions are not permanent and remains focused on the long-term while prioritizing product development. While most Wall Street analysts believe Coinbase will weather the storm, they also warn that increased regulation of cryptocurrencies could hamper the company’s growth.


Much has been said about cryptocurrency regulation, but little has been done.

Treasury Secretary Janet Yellen reacted to volatility in crypto markets this week, saying on Thursday that the US needs a regulatory framework to protect against the risks surrounding cryptocurrencies and stablecoins.

In March, Federal Reserve Chair Jerome Powell said new forms of digital money, such as cryptocurrencies and stablecoins, will pose risks to the US financial system and require new rules to protect consumers. This Monday, just before Terra imploded, the Fed said in its mid-year Financial Stability Report that stablecoins were vulnerable to “runs” that could harm the coins’ owners.

Securities and Exchange Commission Chairman Gary Gensler said that the crypto industry is “riddled with fraud, fraud and abuse” and that his agency needs more authority from Congress — and more funding — to regulate the market.

The UK has unveiled plans to regulate stablecoins as part of a broader plan to become a global hub for digital payments. The legislators of the European Union have agreed on draft laws for cryptoassets, but still have to negotiate a final bill.


Christopher Rugaber, AP Economics Writer, and Michael Liedtke, AP Technology Writer, contributed.

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