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The bitcoin price, after falling below $20,000 per bitcoin last June, has recovered somewhat but remains well below the peak of nearly $70,000 set late last year, as recession fears mar the market on the Federal Reserve’s outlook. Ethereum price has also bounced back from recent lows with ethereum co-founder Vitalik Buterin giving a surprising ethereum price prediction.
Now, as the shock waves from the collapse of the terraUSD stablecoin and its backing cryptocurrency luna continue to be felt, the International Monetary Fund (IMF) has warned “there are others that could fail.”
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“We could see further selling, both in cryptoassets and in risky asset markets, such as stocks,” Tobias Adrian, director of money and capital markets for the IMF, told Yahoo Finance in an interview. “There may be further failures in some of the coin offerings – particularly some of the algorithmic stablecoins that have been hardest hit, and there are others that may fail.”
The failure of the Terra ecosystem sparked intense regulatory scrutiny of the crypto market, with the US securities watchdog ramping up its pursuit of what it considers unregistered securities and a top VC predicting “this is going to blow up in the faces of the venture community.” Billionaire investor Mark Cuban has in meanwhile warned of a “nightmare awaiting the crypto industry”.
Terra’s problems briefly looked like they could spread to other stablecoins, including the two biggest tethers and USDC
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“There’s some vulnerability there because they’re not backed one-to-one,” Adrian said, referring to tethers which are backed by a mix of cash, money market funds, US Treasuries, notes, corporate bonds, loans and cryptocurrencies. In May, Tether’s issuer said the stablecoin is now partially backed by “non-US” government bonds, the first time Tether Limited admitted it buys sovereign debt from countries outside the US in addition to treasury bills.
“[Some fiat-backed stablecoins] are backed by somewhat risky assets … it is certainly a vulnerability that some of the stablecoins are not fully backed by cash-like assets,” Adrian added.
Last week, the IMF released a report detailing how the crypto crash “led to massive losses in crypto investment vehicles” and “failures in algorithmic stablecoins,” but the fund said it is convinced that “spillovers” to “the broader financial system” will remain limited.
“What was very worrying in the 2008 crisis was that the banks were very exposed to the shadow banks, and we don’t see this exposure of banks to shadow banks through crypto at the moment,” said Adrian Yahoo Finance.