(Bloomberg) —
Bitcoin rebounded from a swoon below $30,000 as a selloff in stocks moderated and a bout of calm washed across global markets.
The world’s largest digital token added as much as 5.4% to $32,636.08 as of 7:48 a.m. in London. Ether at one point climbed 6.4%, while coins like Solana and Avalanche were also in the green.
Bitcoin’s earlier plunge had taken it to levels last seen in the middle of 2021. Whether the calm will last is an open question. Tightening monetary policy to combat runaway inflation is curbing liquidity, creating a formidable obstacle for speculative assets like cryptocurrencies.
For instance, Michael Novogratz, the billionaire cryptocurrency investor who leads Galaxy Digital Holdings Ltd., warned that he expects things to get worse before they get better.
“Crypto probably trades correlated to the Nasdaq until we hit a new equilibrium,” Novogratz said on Galaxy’s first-quarter earnings call on Monday, adding that investors may see “a very choppy, volatile and difficult market for at least the next few quarters before people are getting some sense that we’re at an equilibrium.”
Bitcoin’s correlation with U.S. stocks is around record levels, and the token pushed higher as S&P 500 and Nasdaq 100 equity futures stabilized and then rallied Tuesday.
Stablecoin Drama
The crypto market is also monitoring TerraUSD, an algorithmic stablecoin that aims to maintain a one-to-one peg to the dollar.
The peg appeared to fray, with the token’s value falling below 70 U.S. cents Tuesday before climbing back above 92 U.S. cents.
Do Kwon, the founder of Terraform Labs, which powers the Terra blockchain, is moving to shore up the stablecoin.
Luna Foundation Guard, the association created to support the decentralized token and Terra blockchain, said it will issue loans worth about $1.5 billion in Bitcoin and TerraUSD to help strengthen TerraUSD’s peg.
‘Watching Carefully’
Kwon captured the attention of the crypto world earlier this year by pledging to buy as much as $10 billion in Bitcoin to prop up Terra.
“We’re watching carefully to see how the market fares over the next 24 hours,” Steven Goulden, senior research analyst at crypto market maker Cumberland DRW, said in an email. “Including whether mechanisms being introduced to help increase reliance, such as LFG lending out Bitcoin to OTC trading firms, will be enough to hold in times of deep stress or if we need additional stabilization mechanisms.”
Bitcoin is down more than 50% since hitting a record of almost $69,000 in November. It’s underperformed both global stocks and gold over the course of 2022 so far.
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