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Bitcoin tumbles, a stablecoin plunges in wild week in crypto - THE CANADIAN PRESS

MAY 14, 2022

Even though the developers of Terra said its algorithms would backstop the stablecoin, they decided to further backstop it with holdings of bitcoin.

Terra’s problems started from a combination of withdrawals of hundreds of millions, perhaps billions, of dollars from Anchor, a platform that supported the stablecoin. Combined with worries overall about cryptocurrencies, and the drop in bitcoin’s price, Terra started to lose its peg to the dollar. The bitcoin that Terra held was also worth less than they paid for it, and selling those bitcoin into the market caused bitcoin prices to fall even further.

Efforts by Terra's developers to shore up liquidity failed. On Friday, Terra had fallen to 12 cents and Luna was trading at a value of less than one ten thousandth of one cent.

COINBASE

Coinbase lost about a third of its value this week, during which the cryptocurrency trading platform reported that active monthly users fell by 19% in the first quarter amid the decline in crypto values.

Investors had been running for the exits even before Coinbase reported a $430 million quarterly loss. Shares closed Friday at $67.87. On the day of its initial public offering just 13 months ago, shares reached $429 each.

In a letter to shareholders, Coinbase said it believed that current market conditions were not permanent and it remained focused on the long-term while prioritizing product development. While most Wall Street analysts expect Coinbase to weather the storm, they're also warning that increased regulation of cryptocurrencies could hamper the company's growth.

REGULATORS

There has been a lot of talk about regulating cryptocurrencies, but little in the way of action.

Treasury Secretary Janet Yellen, responding to the volatility in the crypto markets this week, said Thursday that the U.S. needs a regulatory framework to guard against the risks surrounding cryptocurrencies and stablecoins.

In March, Federal Reserve Chair Jerome Powell said new forms of digital money such as cryptocurrencies and stablecoins present risks to the U.S. financial system and will require new rules to protect consumers. This Monday, right before the implosion of Terra, the Fed said in its semiannual report on financial stability that stablecoins are vulnerable to “runs” that could harm owners of the coins.

Securities and Exchange Commission Chairman Gary Gensler has said that the crypto industry is “rife with fraud, scams and abuse” and that his agency needs more authority from Congress — and more funding — to regulate the market.

Britain has unveiled plans to regulate stablecoins as part of a broader plan to become a global hub for digital payments. European Union lawmakers have agreed on draft rules for cryptoassets, but still have to negotiate a final bill.

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AP Economics Writer Christopher Rugaber and AP Technology Write Michael Liedtke contributed.

Matt Ott And Ken Sweet, The Associated Press

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