Bitcoin (BTC) price falls below $26,000 as crypto sell-off picks up

Bitcoin fell below $26,000 for the first time in 16 months, amid a broader sell-off in cryptocurrencies that wiped more than $200 billion from the entire market in a single day.

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

Bitcoin has since pared its losses and last traded at $28,569.25, down 2.9%.

Ether, the second largest digital currency, fell to as low as $1,704.05 per coin. It is the first time the token has fallen below the $2000 mark since June 2021. Ether was last down 8.8% at a price of $1937.88.

Investors are fleeing cryptocurrencies at a time when stock markets have plunged from the peaks of the coronavirus pandemic amid fears of skyrocketing prices and a worsening economic outlook. US inflation data on Wednesday showed prices of goods and services jumped 8.3% in April, higher than expected by analysts and near the highest level in 40 years.

Also weighing on traders’ minds is the demise of the controversial stablecoin protocol Terra. TerraUSD, or UST, is meant to mirror the value of the dollar. But it plunged below 30 cents on Wednesday, shaking investors’ confidence in the so-called decentralized financial space.

Stablecoins are like the bank accounts of the barely regulated crypto world. Digital currency investors often turn to them for security in times of market volatility. But UST, an “algorithmic” stable coin that is underpinned by code rather than cash held in a reserve, has struggled to maintain a stable value as holders bolted for the exits in droves.

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

Investors fear the implications for bitcoin. Luna Foundation Guard—a fund created by Terra creator Do Kwon—had amassed a multibillion-dollar bitcoin pile to support UST in times of crisis. The fear is that Luna Foundation Guard is selling a large part of its bitcoin holdings to shore up its ailing stablecoin. It’s a risky game – not least because bitcoin itself is an incredibly volatile resource.

The fallout from Terra’s collapse led to fears of a market contagion. Tether, the world’s largest stablecoin, also fell below its $1 peg on Thursday, at one point dipping to 95 cents. Economists have long feared that tether may not have the necessary amount of reserves to shore up the dollar in the event of mass withdrawals.