Stablecoins Were Knocked Off Their Pegs Due to Crypto Volatility

Stablecoins, which are traditionally thought of as the market’s safe havens, have been hammered hard by cryptocurrency volatility as reported by Reuters, with investors fleeing the sector and several losing their pegs to their underlying assets.

According to CoinGecko data, the market capitalization of stablecoins fell to $156.8 billion on Thursday, down from roughly $181 billion at the start of May.

Tether, the world’s most popular stablecoin, fell to $0.993 on Wednesday before swiftly regaining parity with the dollar. In a letter, crypto digital asset manager IDEG noted, “Stablecoin market cap goes hand in hand with sentiment and liquidity in crypto markets, and it’s slightly worrying that USDT appears to see another round of liquidations.” 

The digital asset markets are suffering after crypto lender Celsius suspended withdrawals and transfers between accounts on the heels of the TerraUSD stablecoin’s implosion last month, as well as global monetary tightening, making riskier assets like cryptocurrencies less appealing.

Stablecoins are crypto tokens that are tied to the value of traditional assets like the dollar, and because of their decreased volatility, they are the preferred method of transferring funds between digital tokens or into cash.

They’re also a target for funds that arbitrage between exchanges and locations in the hopes of betting on stablecoins that are barely below par and regaining parity.

Tether‘s market valuation has dropped more than $5 billion in the last 30 days due to concerns about its reserve-backed Tether’s exposure to Celsius, as well as continued concerns regarding its reserve assets.

“There is some recognition that they (Tether) are going to have some bad loans because of Celsius,” Joseph Edwards, head of financial strategy at crypto business Solrise Group, stated. However, “Tether’s market cap is still above $70 billion and these things are like a drop in an ocean,” he noted.

Tether, in its turn, said that any loans to Celsius were overcollateralized and that “false rumors” were fueling concerns about the composition of its commercial paper reserves.

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