Briefs: Cryptocurrencies drop further; scrutiny of Elon Musk’s Twitter moves intensifies

Cryptocurrencies resumed declines as the collapse of the TerraUSD stablecoin triggered a flight from many popular digital tokens.

Bitcoin shed as much as 6.1% on May 12, falling below US$27,000 ($37,638) to the lowest since December 2020. Ether slid up to 12%, while tokens like Avalanche and Solana that un­derpin some key decentralised finance protocols also retreated.

Virtual coins had earlier posted double-digit intraday per­centage gains but the rally fizzled. The TerraUSD stablecoin was still below its US$1 intended peg, while the affiliated to­ken Luna tumbled.

The crypto sector overall is nursing heavy losses for the week and sentiment remains fragile. Stablecoins are key ele­ments of the crypto market, where traders park funds as they move in and out of other tokens. The various stablecoins tak­en together are worth well over US$100 billion, and a widen­ing loss of confidence could be an existential test for the digi­tal-asset ecosystem.

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The TerraUSD algorithmic stablecoin — also known as UST — has been bouncing between 30 cents and 90 cents and was around 66 cents as of 6:18am in London. Backers of the coin are trying to raise about US$1.5 billion to shore up the token after it crashed from its dollar peg, according to the founder of a firm that was approached about the deal.

“The downfall of the stablecoin UST has impacted the cryp­to market to a great extent,” said Edul Patel, CEO of Mudrex, an algorithm-based crypto investment platform. While Bitcoin has often rebounded quickly from crashes in the past, this time it could have further to fall, he added.

“Is the market getting spooked by what’s happening with Ter­ra? The answer is yes,” Craig W Johnson, chief market techni­cian at Piper Sandler, said. “Money-market funds are important to investors and right now we’re questioning the third-largest money-market fund in crypto land. People did not think we were going to break the buck on that and that’s clearly happened.”

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Crypto sentiment was also hurt by elevated US inflation, which points to aggressive interest-rate hikes — an unfavour­able environment for risk assets. “There is extreme fear across the crypto market,” said Marcus Sotiriou, an analyst at the UK-based digital-asset broker GlobalBlock.

The area around US$30,000 had been an “especially sensi­tive zone,” for Bitcoin, wrote James Malcolm, head of foreign exchange and crypto research at UBS. That is where mining economics turn negative, “which could potentially lead to in­creased coin sales by this key cohort,” he said.

Meanwhile, shares and bonds of Coinbase Global fell to new lows on May 11, signalling investor scepticism about the pros­pects of the crypto exchange in a bear-market. The company reported lower-than-expected revenues yesterday, and warned trading volume and monthly transacting users in the second quarter is expected to be lower than in the first.

Piper Sandler‘s Johnson says that is another concern for crypto investors right now. “It’s the largest exchange here in the United States and they just turned a loss,” he said, add­ing that Terra’s troubles are all “snowballing in crypto land.”

Still, a lot of crypto investors, aware of the fact that Bitcoin has gone through a boom-and-bust cycle before only to recoup losses over and over again, are preaching patience. “Ultimately every investor needs to seize positions based on their risk lev­el and time horizon,” said Alex Tapscott, managing director of the digital asset group at Ninepoint Partners. “We believe Bit­coin will recover and that we’re still in the early stages of this new internet of value. Keep calm and HODL (an acronym for “hold on for dear life”).” — Bloomberg

Scrutiny of Elon Musk’s Twitter moves intensifies in Washington

Elon Musk’s bid to buy Twitter is facing more scru­tiny in Washington follow­ing a report that the US Securities and Exchange Commission (SEC) is prob­ing whether he broke rules last month when disclos­ing a large stake in the so­cial media platform.

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The Wall Street Journal reported on May 11 that the SEC is investigating Musk’s submission of a form that investors must file when they accumulate more than 5% of a company. The Fed­eral Trade Commission is also reviewing the bid by the world’s richest person to take Twitter private.

Musk disclosed on April 4 that he acquired more than 9% in the company, a week later than regulations allow and by us­ing a filing typically reserved for passive investors. He has since embarked on a highly-public takeover bid.

An SEC spokesman declined to comment on the Journal re­port. Alex Spiro, a lawyer for Musk, did not immediately respond to a request for comment. Inquiries by the SEC do not always lead to the regulator taking action.

SEC Chair Gary Gensler has been pressing to tighten rules for how investors must disclose they have taken a major stake in a company. He has called for more transparency, and earlier this year proposed cutting the maximum time that an investor has to reveal they would have taken a significant position.

Over the years, the SEC has repeatedly sparred with the Tes­la CEO and was already investigating whether he and his broth­er violated insider trading rules when selling shares in the elec­tric automaker late last year — something Musk has denied. He is also fighting the regulator in court over fallout from his infa­mous tweet that he had secured funding to take Tesla private.

Musk, who reached an agreement to acquire Twitter for rough­ly US$44 billion late last month, has said the San Francisco-based company has restricted user speech and wants to push it toward a more free-speech approach. — Bloomberg

PBoC says it is making stabilising growth a higher priority

China’s central bank is making stabilising economic growth a top priority and will step up support for weak sectors, deputy gov­ernor Chen Yulu said. The People’s Bank of China (PBoC) has guided loan interest rates lower from an already low level, Chen said at a press briefing in Beijing on May 12. He reiterated the PBOC’s pledge to use new policy tools to cushion the economy.

“The PBOC will make stabilising growth a more prominent priority, strengthen cross-cyclical policy adjustment, and accel­erate to implement policy measures already announced, espe­cially to actively plan new policy tools,” said Chen.

The yuan extended losses, falling as much as 0.6% to a fresh low of 6.7630 to the US dollar, after Chen’s comments. The de­cline came even after the central bank set a stronger-than-expect­ed fixing for an eighth straight session on May 12. The yield on 10-year government bonds was little changed at 2.82%.

“We think the market is taking the PBoC’s remark on guid­ing interest rates lower, to mean monetary easing will contin­ue,” said Irene Cheung, senior foreign exchange strategist at Australia and New Zealand Banking Group (ANZ) in Sin­gapore. “By allowing the yuan to weaken since late April, we think the central bank may have included the currency as an easing tool.”

The central bank has taken relatively modest easing action in recent months despite the sharp slump in activity as the gov­ernment locked down cities like Shanghai to contain Covid-19 outbreaks. The PBoC made a smaller-than-expected cut in the reserve requirement ratio (RRR) for banks last month and re­frained from cutting policy interest rates.

Even so, lending rates in the economy have come down. The weighted average interest rate for corporate loans was 4.4% in the first quarter — down 0.21 percentage point from the end of 2021 — the PBOC said in the monetary policy report published on May 9.

“The PBoC has stepped up the implementation of prudent monetary policy to help the macro economy stay stable,” Chen said. “First, the pre-emptive RRR cut has kept liquidity reason­ably ample. Second, we have guided interest rates in the loan markets to decline from an already low level, to reduce mar­ket entities’ borrowing costs and stimulate financing demand.” — Bloomberg