Bitcoin Has Survived Worse. This Crypto Crash Could Offer Opportunities.

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A cryptocurrency crash has wiped away $600 billion in value in the past week, as the largest digital asset, Bitcoin, plummeted by more than 25%.

The scale of the selloff is massive, but this isn’t the first time cryptocurrencies have seen intense volatility.

And, already, some on Wall Street are eyeing opportunities.

Bitcoin
slid 11% over the past 24 hours to $28,000, having dipped below $26,000 in earlier trading. Just last week, the largest crypto was changing hands around $40,000. Six months ago, it was sitting at its all-time high near $69,000—more than double its current level.

“While we can’t call the bottom and correlations among asset classes remain elevated, Bitcoin has survived corrections of 70-80% in the past,” Martha Reyes, the head of research at digital asset broker and exchange Bequant, said in a note. “This may be an opportunity for institutions to build positions at better levels.”

The last time Bitcoin saw a crash like this was last year, when the crypto similarly collapsed by more than 50%. It happened over the course of just three months, with Bitcoin dipping below $30,000 in July 2021 after topping $63,000 in April. Bitcoin would go on to hit its all time-high some four months after that summer low.

Crypto history is littered with other examples. Bitcoin neared $18,000 in December 2017 and was below $7,000 by early the following February. Bitcoin’s even earlier days hold more cases.

However, one troubling development in the current crash is the situation with stablecoins, which are widely used tokens designed to maintain a 1:1 peg with a real asset, usually the U.S. dollar.

Stablecoin TerraUSD’s meltdown has already added downward pressure on Bitcoin, and Tether—in many ways the bedrock of the crypto economy, with daily trading volumes more than double that of Bitcoin—is the latest casualty. Tether lost its peg from the dollar on Thursday, moving as low as 96 cents on the dollar.

Traders use Tether and other stablecoins as a source of surety in a volatile world, and the coins have become a prime medium of exchange for payments, trading, lending, and other activities based on blockchain technology. The failure of stablecoins represents a systemic risk to the crypto ecosystem.

“The uncertainty around stablecoins is a concern and could lead to another flush out,” said Reyes. “But we may finally get the much needed regulatory framework that could entice institutions in.”

Regulators worry that if stablecoins take off as privately issued digital money, they could pose risks to broader financial markets and monetary policies. A run on a stablecoin could, in theory, lead to heavy selling in assets held as reserves, such as commercial short-term debt or other cash proxies.

“The markets are in meltdown but this may present an opportunity for institutional players to start building positions and push stablecoin regulation to provide more confidence,” said Reyes.

Write to Jack Denton at [email protected]