Bitcoin Price: Panic In The Crypto Market Captures Janet Yellen’s Attention

What’s going on: As of Friday, the price of bitcoin plunged almost 50% from its all-time high as traders – worried about whether the Federal Reserve’s bid to fight inflation could tip the economy into a recession – have abandoned riskier investments.

But in recent days, the implosion of high-profile crypto experiment TerraUSD has fueled deeper anxiety. On Thursday, Tether – a popular “stablecoin” touted as a safe place for crypto investors to park their money – broke its peg to the US dollar, sparking fresh alarm. Bitcoin price fell to $26,350.

“If we see this continue for several days, we will start to be quite worried, quite worried,” Marcus Sotiriou, crypto analyst at digital asset broker GlobalBlock, told me. “The implications are so significant. It’s just unknown.”

Breaking it down: making sense of the situation requires a quick primer on stablecoins and their wilder offshoot, algorithmic stablecoins.

Traditional stablecoins like Tether have become the foundation of the crypto market, as they are theoretically entirely backed by durable assets. A digital coin can be traded at any time for $1, serving as a hedge against volatility. Given the notorious fluctuations in the market, their use by crypto companies, exchanges, and traders has skyrocketed.

The Federal Reserve estimates that the value of stablecoins “has grown rapidly over the past year,” surpassing $180 billion in March.

The boom has helped spur the rise of algorithmic stablecoins like TerraUSD. Technically, these coins are also worth $1. But they are not backed by durable assets and instead use financial engineering to maintain peg.

The entire sub-industry has pundits worried, including the Fed. In a report released earlier this month, the central bank said there was little clarity on what really backed stablecoins, and noted that a few big players dominate a market with little oversight. A loss of confidence could then trigger a devastating race, which could in turn shake confidence in the entire digital economy.

It is not clear what is happening now. But as stablecoins turn, so is the risk.

TerraUSD was initially hesitant and broke its peg to the US dollar last weekend. It fell as low as 23 cents on Wednesday before recovering ground. It was last trading at 58 cents after its creators announced an emergency response.

“It’s exactly the ‘death spiral’ that a lot of people predicted,” Henry Elder, head of decentralized finance at Wave Financial, a digital asset manager, told me.

Tether was last below 99 cents on the dollar, dragging bitcoin down as well. The most popular cryptocurrency – which enjoys the support of a growing number of traditional investors – has fallen 10% in the past 24 hours.

Why it matters: This may seem very weedy. Crypto assets, after all, continue to make up a very small part of the broader financial system. But powerful people like Treasury Secretary Janet Yellen are watching, fearing the situation could create unpleasant and unpredictable aftershocks for investors of all stripes.

“A stablecoin known as TerraUSD has had a run and its value has declined,” Yellen said during testimony before the Senate earlier this week. “I think it just illustrates that this is a rapidly growing product and there are risks to financial stability.”

Inflation has slowed, but price pressure does not fade

At first glance, the latest US inflation report seemed to contain good news.

Latest: Consumer prices in the year to April rose 8.3%, down slightly from March, when inflation rose at the fastest rate in four decades.

But digging into the data, it seemed less reassuring. Excluding volatile food and energy prices, core inflation rose 0.6% month-over-month, indicating that costs are rising for a wide range of products.

This makes economists and investors nervous.

“Inflation is no longer contained in the supply chain,” said Jefferies chief economist Aneta Markowska.

Companies have been building up their inventories, which is helping to dampen goods inflation. But prices in the service sector are surging as Americans resume travel and other leisure activities.

“It’s the inflation story to worry about: Basic services inflation has been rising for four straight months,” said economist Jason Furman. tweetednoting that services are a much more important input than goods when calculating the consumer price index.

Investor Insight: The news spooked Wall Street, sending the S&P 500 down 1.7%. The index is now 18% below its all-time high reached in January.

Investors were troubled that the inflation reading was worse than expected. Economists polled by Refinitiv were expecting annual inflation of 8.1%. This could force the Federal Reserve to continue its aggressive withdrawal of support for the economy for even longer, hurting riskier bets.

Disney avoided Netflix’s fate. But it’s not all good news

The question dragged on disney (SAY) from netflix (NFLX) reported its first subscriber loss in over a decade: If people cut spending, will they also start bailing out Disney+?

So far, that doesn’t seem to be the case. Disney said Wednesday that its flagship streaming service added nearly 8 million subscribers in its most recent quarter, avoiding Netflix’s bad luck.

“The platform’s growth since launch reinforces its unique nature,” CEO Bob Chapek said on a call with analysts. “Quite simply, we think Disney+ is one of a kind.”

Hulu and ESPN+ also rose last quarter. The company’s services now have nearly 206 million users.

Chapek said Disney+ is still on track to reach between 230 million and 260 million subscribers by mid-2024.

That said: Disney shares initially rose after the report, but are now more than 5% lower in premarket trading.

A concern ? Disney is spending a lot to keep growing. The company’s direct-to-consumer unit lost $887 million last quarter, more than triple the losses from a year ago. Disney blamed “higher programming and production, marketing and technology costs.”

Following

six flags (SIX), Tapestry (TRP) and Utz Brands announce results before US markets open. Poshmark and Wheels Up follow after the close.

Also today: The U.S. Producer Price Index for April is released at 8:30 a.m. ET.

Coming tomorrow: the University of Michigan consumer sentiment survey for the month of May.



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Bitcoin Price: Panic In The Crypto Market Captures Janet Yellen’s Attention


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