Bitcoin fell below $27,000 on Thursday. This was due to cryptocurrency markets extending their losses as a result of rising inflation fears and the collapse of a controversial stablecoin.
According to Bitstamp data, bitcoin’s price plunged as low as $26,595.52 on Thursday morning. This is the first time that bitcoin has fallen below $27,000 since Dec. 30, 2020.
At 1:30 AM ET, bitcoin was trading at $27,061, down 15% in the last 24 hours. ET: Bitcoin traded at $27,061, down 15% over the past 24 hours.
Ether dropped to $1,789 per coin, making it the second-biggest cryptocurrency. This is the first time that the token has fallen below the $2,000 mark in 2021.
Last time Ether fell 23% to $1,852
Investors are abandoning cryptocurrencies as stock markets plunge from highs caused by the coronavirus pandemic. This is due to fears about soaring prices, and a worsening economic outlook.
U.S. inflation data released Wednesday showed that prices for goods and services rose 8.3% in April. This was higher than analysts expected and is close to the highest level since 1940.
The downfall of Terra, a troubled stablecoin protocol, is another factor that traders should be concerned about.
TerraUSD (or UST) is supposed to reflect the value of the US dollar. However, it dropped to 30 cents Wednesday which shook investors confidence in the so-called decentralized finance sector.
Stablecoins can be compared to the crypto world’s bank accounts. Stablecoins are often used by digital currency investors to provide safety during volatility.
UST, an “algorithmic stablecoin” that is underpinned by code and not cash in a reserve has struggled to maintain a steady value because holders fled for the exit en masse.
UST traded at a low of 62 cents on Thursday morning, well below its $1 target.
Luna is another Terra token with a floating price. It was worth 30 cents at the time and erased 97% in 24 hours.
The implications of bitcoin are causing investors to be nervous. Luna Foundation Guard, a fund created by Terra creator Do Kwon, had amassed a multibillion-dollar pile of bitcoin to support UST during times of crisis.
Luna Foundation Guard may sell large amounts of its bitcoin holdings in order to help its struggling stablecoin. This is a risky move, especially since bitcoin is an extremely volatile asset.
Investors were also worried Thursday by a decline in the value tether, the largest stablecoin in the world. At one point, the token fell below 99 cents. Economists fear that tether might not have enough reserves to support its dollar peg in case of massive withdrawals.
