The bitcoin price, after dipping under $20,000 per bitcoin last in June, has somewhat recovered but remains far under its peak of almost $70,000 set late last year as recession fears play havoc with the market the Federal Reserve’s outlook. The ethereum price has also rebounded from recent lows with ethereum cofounder Vitalik Buterin issuing a surprise ethereum price prediction.
Now, as the shockwaves from the collapse of the terraUSD stablecoin and its support cryptocurrency luna continue to be felt, the International Monetary Fund (IMF) has warned “there are others that could fail.”
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“We could see further selloffs, both in crypto assets and in risky asset markets, like equities,” Tobias Adrian, director of monetary and capital markets for the IMF, told Yahoo Finance in an interview. “There could be further failures of some of the coin offerings—in particular, some of the algorithmic stablecoins that have been hit most hard, and there are others that could fail.”
The failure of the Terra ecosystem triggered intense regualtory scruntiny of the crypto market, with the U.S. securities watchdog ramping up its pursuit of what it considers unregistered securities and one top VC predicting “this is going to blow up in the faces of the venture community.” Billionaire investor Mark Cuban has meanwhile warned of a “nightmare that’s waiting for the crypto industry.”
Terra’s trouble briefly looked as though it could spread to other stablecoins, including the two largest tether and USDC
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“There’s some vulnerability there, because they’re not backed one to one,” said Adrian, referring to tether which is backed by a mixture of cash, money market funds, U.S. Treasury bills, commercial paper, corporate bonds, loans and cryptocurrencies. In May, tether’s issuer said the stablecoin is now backed in part by “non-U.S.” government bonds, the first time Tether Limited admitted it is buying government debt from countries outside the U.S. in addition to Treasury bills.
“[Some fiat-backed stablecoins] are backed by somewhat risky assets … it is certainly a vulnerability that some of the stablecoins are not fully backed by cash-like assets,” Adrian added.
Last week, the IMF released a report detailing how the crypto crash “led to large losses in crypto investment vehicles” and “the failure of algorithmic stablecoins,” however, the fund said it’s confident that “spillovers” to the “broader financial system” will remain limited.
“What was very worrisome in the 2008 crisis was that the banks were highly exposed to the shadow banks, and we don’t see this exposure of banks to shadow banks through crypto at the moment,” Adrian told Yahoo Finance.