* Bitcoin hits intra-day high above $30,000
* TerraUSD collapse shakes crypto market
* Analysts say impact on traditional markets limited
(Updates prices, adds comment)
HONG KONG/LONDON/NEW YORK, May 13 (Reuters) -
C ryptocurrencies steadied on Friday, with bitcoin recovering
from a 16-month low after a volatile week dominated by the
collapse in value of TerraUSD, a so-called stablecoin.
Crypto assets have been swept up in broad selling of risky
investments on worries about high inflation and rising interest
rates, but have started showing signs of settling.
Although the near-term trajectory of the crypto market is
challenging to predict, the worst may be over, said Juan Perez,
director of trading at Monex USA in Washington.
"Perhaps now that all the obstacles to global growth along
with monetary tightening are clear, perhaps we will start seeing
swings upwards," he said.
Bitcoin, the largest cryptocurrency by market
value, last rose 4.85% to $29,925, rebounding from a December
2020-low of $25,400 which it hit on Thursday.
Although it hit a high of just under $31,000 on Friday,
bitcoin remains far below week-earlier levels of around $40,000
and unless there is a huge weekend rally it is on track for a
record seventh consecutive weekly loss.
Stifel chief equity strategist Barry Bannister said bitcoin
still has further downside to about $15,000.
"Bitcoin is also GDP-sensitive, because bitcoin falls when
the PMI Manufacturing index drops, as we expect (into the third
quarter of 2022), indicating that a last, capitulatory bitcoin
drop may be still ahead," he added.
Ether, the second largest cryptocurrency in terms of market
cap, also gained, climbing 6.48% to $2,051.
Tether, the biggest stablecoin whose developers say is
backed by dollar assets, was back at $1, after falling to 95
cents on Thursday.
TerraUSD, however, the stablecoin that is also supposedly
pegged to the dollar, continued to languish, at 14 cents,
according to data tracker CoinGecko. It has remained de-pegged
from the U.S. currency since May 9.
The crypto sector's overall market capitalisation rose 6.6%
to $1.35 trillion on Friday, CoinGecko data showed.
Broader financial markets have so far seen little knock-on
effect from the cryptocurrency crash. Ratings agency Fitch said
in a note on Thursday that weak links to regulated financial
markets will limit the potential of crypto market volatility to
cause wider financial instability.
"Crypto is still tiny and crypto integration within broader
financial markets is still infinitesimally small," said James
Malcolm, head of FX strategy at UBS.
Crypto-related stocks have taken a pounding with the
meltdown in the market, but on Friday, broker Coinbase
rose 16% to $67.87, although it is still down 28% on the week.
Selling has roughly halved the global market value of
cryptocurrencies since November, but the drawdown turned to
panic in recent sessions with a squeeze on stablecoins.
Stablecoins are tokens pegged to the value of traditional
assets, often the U.S. dollar, and are the main medium for
moving money between cryptocurrencies or for converting balances
to fiat cash.
Cryptocurrency markets were rocked this week by the collapse
of TerraUSD (UST), which broke its 1:1 peg to the dollar.
The coin's complex stability mechanism, which involved
balancing with a free-floating cryptocurrency called Luna,
stopped working when Luna plunged close to zero.
"For these types of stablecoins, the market needs to trust
that the issuer holds sufficient liquid assets they would be
able to sell in times of market stress," analysts at Morgan
Stanley said in a research note.
The operating company of another stablecoin called Tether
said it has the necessary assets in Treasuries, cash, corporate
bonds and other money-market products.
But stablecoins are likely to face further tests if traders
keep selling, and analysts are concerned that stress could spill
over into money markets if there is more and more liquidation.
Fitch said cryptocurrencies and digital finance could face
"significant negative repercussions" if investors lose
confidence in stablecoins, as many regulated financial entities
have increased their exposure to the sector in recent months.
(Reporting by Tom Westbrook in Singapore, Alun John in Hong
Kong, Elizabeth Howcroft in London, and Gertrude Chavez-Dreyfuss
in New York; Additional reporting by Hannah Lang in Washington;
Editing by Bradley Perrett, Emelia Sithole-Matarise and Bernard