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Bitcoin’s 2021 gains wiped out in stablecoin rout

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© Reuters. FILE PHOTO: A representation of cryptocurrency Bitcoin is seen in this illustration taken August 6, 2021. REUTERS/Dado Ruvic

By Alun John and Elizabeth Howcroft

HONG KONG (Reuters) -Cryptocurrencies extended their sell-off on Thursday, with Bitcoin falling to its lowest levels in 16 months as a stampede out of so-called stablecoins sent shockwaves around broader markets.

The latest blow to Bitcoin and its smaller rival Ether, which has shed more than half its market value so far this year, came from a meltdown this week in TerraUSD, also one of the world’s biggest cryptocurrencies.

Bitcoin dropped to a low of $25,401.05, its lowest level since Dec. 28, 2020. In the past eight sessions, it has lost a third of its value, or $13,000, and is down more than 45% so far this year

From a peak of $69,000 in November 2021, it has lost nearly two-thirds of its value.

TerraUSD, also known as “UST”, slipped below its 1:1 peg to the dollar this week, roiling cryptocurrency markets already under pressure alongside tumbling stock markets.

“The collapse of the Peg in TerraUSD has had some nasty and predictable spillovers. We have seen broad liquidation in BTC, ETH and most ALT coins,” said Richard Usher, head of OTC trading at BCB Group, adding that the moves are reminiscent of the bank runs during the 2008 financial crisis.

Stablecoins are digital tokens pegged to the value of traditional assets, such as the U.S. dollar. They are popular in times of turmoil in crypto markets and are often used by traders to move funds around and speculate on other cryptocurrencies.

On Thursday, TerraUSD was quoted around 50 cents, according to CoinGecko price data.

Unlike most stablecoins which are backed by reserves, TerraUSD is an algorithmic, or “decentralised”, stablecoin. It was supposed to maintain its peg via a complex mechanism which involved swapping it with another free-floating token.

But even reserve-backed stablecoins, which say they have sufficient assets to maintain their pegs, were showing signs of stress on Thursday.

Major stablecoin Tether slipped below its dollar peg, hitting as low as 98 cents around 0732 GMT on Thursday, according to CoinGecko. USD Coin was trading at around $1.04 while Binance USD was at $1.07 – a significant breakout of its usual range.

“The Terra incident is causing an industry-based panic, as Terra is the world’s third-biggest stable coin,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank. But TerraUSD “couldn’t hold its promise to maintain a stable value in terms of U.S. dollars.”

Market players are still assessing the fallout of the collapse of TerraUSD to identify whether major companies or investors have been badly hurt. That would be a possible clue to wider contagion.

Ether, the world’s second-largest cryptocurrency, tumbled nearly 15% on Thursday to $1,700, its lowest since June 2021.

Unlike previous sell-offs in broad financial markets, when cryptocurrencies have been largely untouched, the selling pressure in these assets this time has undermined the broader argument that they are dependable stores of value amid market volatility.

Forex

Dollar Down, but Investor Sentiment Remains Fragile Over Recession Fears

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© Reuters.

By Gina Lee

Investing.com – The dollar was down on Thursday morning in Asia. Safe-haven currencies pressed paused after the previous session’s big gains. However, concerns are growing that tighter monetary policies from the U.S. Federal Reserve and other global central banks could impact economic growth.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.03% to 103.65 by 11:42 PM ET (3:42 AM GMT). The small loss comes after a 0.55% jump during the previous session that ended the U.S. currency’s three-day losing streak.

The USD/JPY pair was up 0.43% to 128.76 after a 0.86% tumble on Wednesday. Japanese trade data for April 2022, released earlier in the day, showed that exports rose 12.5% year-on-year, imports rose 28.2% year-on-year, and the trade balance contracted to -JPY839.2 billion (-$6.51 billion).

The Swiss franc, a fellow safe-haven asset, continued to strengthen. The dollar lost a further 0.13% to 0.9869 franc after a 0.6% slide.

The AUD/USD pair rose 0.73% to 0.7004 and the NZD/USD pair rose 0.56% to 0.6330.

The USD/CNY pair inched up 0.08% to 6.7600 and the GBP/USD pair was up 0.32% to 1.2378.

The benchmark 10-year U.S. Treasury yield steadied around 2.89% in Tokyo trading, falling from a high of 3.015% hit during the prior session.

However, investor sentiment remains fragile despite safe-haven assets cooling a recent rally. Asian stocks and U.S. futures were down, tracking a 4% drop for the S&P 500 and a 5% plunge for the Nasdaq the day before.

Poor U.S. housing data on Wednesday added to economic slowdown concerns, with building permits at 1.819 million but contracting 3.2% month-on-month in April 2022. Housing starts were at 1.724 million but contracted 0.2% month-on-month.

Fed Chairman Jerome Powell adopted his most hawkish tone to date earlier in the week, saying the U.S. central bank would hike interest rates as high as needed to stem a surge in inflation that threatened the foundation of the economy.

Powell’s stance “makes it hard to achieve a ‘soft landing’ for the U.S. economy given the long lags between changes in monetary policy and changes in inflation,” Commonwealth Bank of Australia (OTC:CMWAY) currency strategist Joseph Capurso said in a note.

“The darkening outlook for the U.S. economy supports the dollar and safe-haven currencies.”

Meanwhile, the euro clawed back some of its losses and was up 0.25% to $1.0489 after Wednesday’s 0.84% slump. The pound remained under pressure after falling 1.2% overnight, with Wednesday’s data showing that the U.K.’s consumer price index grew 9% year-on-year in April 2022. The growth, the highest in 40 years,

Back in Asia Pacific, the Australian dollar shook off a smaller-than-forecast increase in the employment change, which was 4,000 in April 2022. The latest employment data also showed that the full employment change was 92,400 and the unemployment rate was 3.9%.

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Yellen: Not legal for U.S. to seize Russian official assets

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© Reuters. FILE PHOTO: U.S. Treasury Secretary Janet Yellen looks on during a U.S. House Committee on Financial Services hearing on the Annual Report of the Financial Stability Oversight Council, on Capitol Hill in Washington, DC, U.S. May 12, 2022. Graeme Jennings/

By David Lawder

BONN, Germany (Reuters) -The United States does not have legal authority to seize Russian central bank assets frozen due to its invasion of Ukraine, Treasury Secretary Janet Yellen said on Wednesday, but talks with U.S. partners over ways to make Russia foot the bill for Ukraine’s post-war reconstruction are starting.

Yellen also said it is likely that the special license granted to allow Russia to make payments to its U.S. bondholders would not be extended when it expires next week, leaving Russian officials a fast-narrowing window to avoid its first external debt default since the 1917 Russian revolution.

Russia’s Feb. 24 invasion of Ukraine is the central agenda item at this week’s gathering of Group of Seven finance ministers, and Yellen is calling for increased financial support for the war-torn country, which the World Bank estimates is suffering $4 billion in weekly physical damage.

“I think it’s very natural that given the enormous destruction in Ukraine, and huge rebuilding costs that they will face, that we will look to Russia to help pay at least a portion of the price that will be involved,” Yellen told reporters here ahead of this week’s meetings.

Some European officials have advocated that the EU, the United States and other allies seize some $300 billion in Russian central bank foreign currency assets frozen by sanctions. The assets are held abroad, but remain under Russian ownership.

“While we’re beginning to look at this, it would not be legal now in the United States for the government to seize those” assets, Yellen said. “It’s not something that is legally permissible in the United States.”

U.S. Treasury officials have also expressed concerns about setting precedents and eroding other countries’ confidence in holding their central bank assets in the United States.

At the G7 meeting in the Bonn suburb of Koenigswinter, Yellen intends to focus on Ukraine’s more immediate budget needs, estimated at $5 billion a month. On Tuesday she pressed U.S. allies to step up their financial support, while a German government official said the ministers would pledge $15 billion of new budget aid.

RUSSIAN DEFAULT RISKS

Russia has some $40 billion of international bonds and has so far managed to keep current on its obligations and avoid default thanks to a temporary license from the Treasury granting an exception allowing banks to accept dollar-denominated payments from Russia’s finance ministry despite crippling sanctions on Russia.

The license expires on May 25, with the next major payment due that day.

On Wednesday Yellen said Treasury is unlikely to extend the exemption. This could result in a technical default if Russia then resorts to trying to pay in roubles rather than dollars as required under the bonds’ covenants.

“There’s not been a final decision on that, but I think it’s unlikely that it would continue,” Yellen said, adding that a technical default would not alter the current situation regarding Russia’s access to capital.

“If Russia is unable to find a way to make these payments, and they technically default on their debt, I don’t think that really represents a significant change in Russia’s situation. They’re already cut off from global capital markets.”

ECONOMY THREATS

Yellen outlined a number of threats to the global economy ahead of the G7 meeting, including spillovers from the war in Ukraine and sanctions on Russia, which have spiked energy and food prices, and a slowdown in China’s economy due to strict COVID-19 lockdowns. But she said she did not think a “synchronized” U.S., Chinese and European recession was likely.

Yellen said China’s zero-tolerance COVID policies appear to be impeding production of goods, compounding supply chain difficulties that have boosted prices and are contributing to its slowdown in growth.

“As one of the largest economies in the globe, China’s economic performance really has spillover impacts on growth all around the world,” Yellen said, adding that the Treasury was closely monitoring Beijing’s policy responses.

She confirmed that she is advocating within the Biden administration for dropping some U.S. tariffs on Chinese goods that “aren’t very strategic” to limit pain on U.S. consumers and businesses.

She said the G7 finance leaders will discuss further sanctions on Russia over its war in Ukraine and talk “about how best to design them to shield the global economy from the adverse effects while imposing maximum harm on Russia.”

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Forex

Yellen: Not legal for U.S. government to seize Russian central bank assets

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© Reuters. FILE PHOTO: U.S. Treasury Secretary Janet Yellen looks on during a U.S. House Committee on Financial Services hearing on the Annual Report of the Financial Stability Oversight Council, on Capitol Hill in Washington, DC, U.S. May 12, 2022. Graeme Jennings/

BONN, Germany (Reuters) – U.S. Treasury Secretary Janet Yellen said on Wednesday that it would not be legal for the United States to seize assets of Russia’s central bank.

Yellen told reporters ahead of a meeting of G7 finance ministers in Bonn, Germany, that the United States and its allies have blocked an estimated $300 billion of assets from Russia’s central bank.

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