Bitcoin and Ether are retaining losses alongside the majority of other cryptocurrencies as the global financial markets remain in a state of uncertainty. The crypto market slipped into the red on Friday, October 13, as investors focused on global news headlines that pushed investors to withdraw from risky investments.
The Bitcoin price on the Bitfinex exchange sank below the $27,000 mark, a critical support level marking its fifth day in a row in the bearish territory. Similarly, Ethereum also saw its value drop, falling below the $1,800 handle.
Stablecoins have become increasingly popular in the crypto market, with many stablecoins being pegged to fiat currencies. The most popular stablecoin is Tether (USDT), allegedly backed by USD deposits held by its issuer. However, there is still a lot of doubt about the proper backing of Tether, and other stablecoins pegged to fiat currencies have also experienced problems. For example, TerraUSD, previously known as Tether, had to change its name to USTC after the stablecoin was de-pegged from the USD on May 9.
Even though stablecoins have their advantages, they are also prone to volatility and do not allow for as much flexibility as other crypto assets. This is because stablecoins often rely on fiat currencies, and they have to be transparent to comply with anti-money-laundering regulations. This means they are less decentralized than other cryptoassets, leading to new centralized intermediaries, such as stablecoin issuers, regulators, and exchanges.
While some authorities have looked to regulate stablecoins similarly to traditional banks, others have decided against this approach. One concern is that stablecoins could become the banks they were meant to replace, subjecting them to bank-like regulations. Additionally, stablecoins often rely on fiat currencies, which can be subject to political and economic factors affecting their stability.
Bitcoin and other cryptocurrencies have seen their values decrease considerably since July 14. This has led many investors to seek safer investments, such as stablecoins. However, a recent study has found that stablecoin issuances negatively transmit Bitcoin and other crypto assets, causing them to dip in value.
The study by Griffin and Shams (2022) found that stablecoin issuances immediately impact Bitcoin prices, but this effect is short-lived. They further found that stablecoins cannot stabilize the crypto market significantly, as they need more liquidity to cover large investor redemptions.
The ETH price has been below the $27,000 mark for over a week and is currently trading at around $1,800. It has fallen below the 55 simple moving average (4 hours), a sign of weakness, and is trading below the 50 RSI, which is also in the bearish zone. In this context, the Ethereum price might decline further unless it breaks out of the current range.
