Bitcoin (BTC) Price Drops Below $26,000 as Crypto Selloff Intensifies

Bitcoin dipped below $26,000 for the first time in 16 months, amid a cryptocurrency selloff that wiped out more than $200 billion from the entire market in a single day.

The bitcoin price fell as low as $25,401.29 on Thursday, according to Coin Metrics. That is the first time the cryptocurrency has dipped below the $27,000 level since December 26, 2020.

Bitcoin has since trimmed its losses and was last trading at $28,569.25, down 2.9%.

Ether, the second largest digital currency, has plunged to as low as $1,704.05 per coin. It is the first time the token has fallen below the $2,000 mark since June 2021. Ether is last down 8.8% at a price of $1,937.88.

Investors are fleeing cryptocurrencies at a time when stock markets have tumbled from coronavirus pandemic highs on fears about rising prices and deteriorating economic prospects. US inflation data released on Wednesday showed prices for goods and services rose 8.3% in April, more than analysts expected and close to the highest level in 40 years.

Also weighing on the minds of traders is the fall of the beleaguered Terra protocol. TerraUSD, or UST, is supposed to reflect the value of the dollar. But it plunged below 30 cents on Wednesday, shaking investor confidence in the so-called decentralized finance space.

Stablecoins are like the bank accounts of the barely regulated crypto world. Digital currency investors often turn to them for safety in times of market volatility. But UST, an “algorithmic” stablecoin that is backed by code rather than cash in a reserve, has struggled to maintain a stable value as holders rushed out en masse.

On Thursday, UST was trading around 41 cents, still well below its forecast peg of $1. Luna, another Terra token that has a floating price and is meant to absorb price shocks from UST, has erased 99% of its value and was last worth just 4 cents.

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Investors are spooked by the implications for bitcoin. Luna Foundation Guard, a fund created by Terra creator Do Kwon, had amassed a multi-million dollar stack of bitcoins to help support UST in times of crisis. The fear is that Luna Foundation Guard will sell off a large portion of its bitcoin holdings to prop up its ailing stablecoin. That’s a long shot, especially since Bitcoin itself is an incredibly volatile asset.

The fallout from Terra’s collapse raised fears of market contagion. Tether, the world’s largest stablecoin, also fell below its parity of $1 on Thursday, at one point sinking to 95 cents. Economists have long feared that Tether may not have the necessary amount of reserves to bolster its dollar peg in the event of massive withdrawals.

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