Janet Yellen says crypto panic was not a real threat to financial stability

Tokens underpinning key decentralised finance protocols also advanced, with Avalanche adding 8 per cent as of 4.45pm in New York (6.45am AEST), according to Bloomberg data. Even ApeCoin rose roughly 25 per cent, according to CoinMarketCap.com.

Bitcoin, meanwhile, rose as much as 6 per cent to trade around $US30,000, after falling to about $US25,000 overnight. And some alternative coins also gained, with bitcoin cash adding 20 per cent at one point before paring gains.

At 8am AEST, bitcoin was trading at $US28,457.39 on bitstamp.net.

Margin calls fading

It is a remarkably more positive picture from the havoc that overtook crypto markets on Wednesday (Thursday AEST) amid a downward spiral in the TerraUSD stablecoin. That day, bitcoin had suffered a nearly 10 per cent drop.

“The fact that Tether is stabilising means that the margin calls that took place are fading,” said Matt Maley, chief market strategist at Miller Tabak + Co. “Whenever you get forced selling in anything, it overshoots. People are still nervous, but the selling has abated. Investors will be nervous for a few more days, but the supply-demand equation has stabilised again.”

Market watchers noted that bitcoin, which typically trades in tandem with the sharemarket, was able to gain on Thursday even as the S&P 500 and Nasdaq 100 sunk 0.1 per cent and 0.2 per cent respectively.

“Crypto has little economic significance. Not that many people own much of it,” said Brian Nick, chief investment strategist at Nuveen. Still, he added that the crypto market is being swayed by the same forces that are affecting equities right now.

“What gets punished when financial conditions are tightening? Anything with a high valuation and an uncertain or non-existent revenue stream,” he said by phone. “And crypto has inarguably high valuations and no revenue stream. That’s very much of a piece with what we’re seeing in growth stocks, tech. It’s correlated but obviously it’s more volatile because the market is less liquid.”

Various trading desks reported business-as-usual conditions, with B2C2 saying it saw two-way flows into UST, and more buying in USDC. Stephane Ouellette, chief executive of FRNT Financial, said he had received questions about Tether, with clients wondering if its dislocation provided any arbitrage opportunities.

“Last night there was a huge arb,” he said, adding that “everything at Tether and Bitfinex appears to be working as usual.”

“There’s no indication there’s anything going wrong there at all besides the market move, which is now looking like it was circumstantial,” he said.

Still, cryptocurrencies remain mired in a deep downturn. “The question, as always, is: now what?,” wrote Michael Purves, chief executive and founder of Tallbacken Capital Advisors. He expects further downside for bitcoin and is looking at the coin potentially hitting $US20,000 or $US15,000.

“A move to 15K would be a move off the January levels which would be quite consistent with the last three long term momentum reversals we have seen,” he said in a note. “However, bears should be prepared for aggressive relief rallies along the way (just as they should with equities).”


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