It is a known fact that the crypto space is now in the middle of a notable bear market which is yet to find its bottom. The star crypto, Bitcoin, currently appears struggling to restore the last line of defence above $20,000. In such a case, the crypto market tumbles down heavily and at the same time, the stablecoins possess extreme strength. Mainly due to the fact that traders just swap their crypto assets into stablecoin and wait until the market recovers to get back in.
Since the algorithmic stablecoin TerraClassicUSD (USTC) lost its peg sharply, traders are now also more cautious about stablecoins. Two events currently underscore that the bear market, now in 2022, will also have a big impact on stablecoins.
Tether (USDT) Loses 20% of its Market Cap in a Month
The most popular stablecoin, Tether (USDT) which gained strength in the second half of 2020 appears to have trembled heavily in the past month. Due to the USTC de-peg, traders also had dumped USDT falling into a FUD. However, the platform had burnt 3 billion USDT to stabalize the peg. No doubt the stablecoin has maintained its peg till now, but the depleting market cap does appear to stabalize since then.
The crypto bear market, combined with all the other news around big players like Terra (LUNA), Celsius Network and the (potential) collapse of 3AC, forced traders out of their positions. Additionally, external factors such as inflation, Fed rate hikes, world war, etc. are driving people not only out of cryptos, but also out of USDT for fiat. However, until USDT maintains its peg, it may not reach the fate of UST.
UST 2.0 on the Horizon, USDD & USDN Crash Hard
The breakdown of the algorithmic stablecoin backed by a volatile asset has ignited a wave of FUD among the other stablecoins as well. Similar to USTC, Tron-based algorithmic stablecoin USDD had lost its peg to hit $0.95 levels while its backed asset TRX also continued to dip. No doubt the platform quickly influx some liquidity which helped the stablecoin recover a little to trade at $0.97 at the press time.
On the other hand, Neutrino USD (USDN), which is a crypto-backed stablecoin pegged to the US dollar, also crashed hard at the same time. However, the stablecoin is still struggling very hard to regain its value as after hitting a low at $0.916, the asset is still trading at $0.94.
Collectively, the bear market is primed to impact all the crypto assets in the market and stablecoins are no exception. Traders exiting their positions due to external pressure could continue as the broader markets also appear in strenuous positions.
