Bitcoin surged above $30,000 in cautious trading on Tuesday as the fallout from a crashing stablecoin continued to keep sentiment in check.
The world’s largest cryptocurrency is up 2 percent to about $30,500 as of 9:08 am in London. Other coins from Ether to Avalanche also saw modest gains.
Bitcoin is down 21 percent in May so far – its worst monthly plunge in a year – following last week’s crypto sector turmoil over the collapse of algorithmic stablecoin TerraUSD, also known by its ticker UST, and the short Tether declines against its dollar peg.
“Small dip buying gave bitcoin a tentative boost, but too many of the retail and institutional worlds still have massive wounds from the recent collapse,” Edward Moya, senior market analyst at Oanda, wrote in a note.
The stablecoin drama has fueled a debate about the future of digital assets and the lessons learned from the collapse of the Terra ecosystem.
Stablecoin “Regulation seems likely” and could lower risk, Goldman Sachs Group strategists Isabella Rosenberg and Zach Pandl wrote in a note. An alternative “government-backed medium” might even oust them, they said.
Investors have fled cryptocurrencies and stablecoins alike since the crash began.
Total circulation of Tether, the largest and most systemic stablecoin, has fallen by more than $7 billion since May 7, when Terra’s de-peg became apparent, data from CoinGecko shows.
Although the TerraUSD and Tether stablecoins operate differently, the subsequent drop in Tether’s own dollar peg to 96 cents on May 12 triggered a wave of redemptions, leading regulators to question whether such assets are suitable for mainstream adoption are.
During the fiasco, Tether said it would continue to honor USDT redemptions at a one-to-one value on its own website, while the exchanges were tied to the token’s actual market value at the time.
“The aftermath of UST’s collapse was long lasting and will likely expand regulatory oversight of the stablecoin space,” blockchain data provider Kaiko said in a research note Monday.
The tokens are not ready to be used by consumers for payments, Rohit Chopra, director of the US Consumer Financial Protection Bureau, added in an interview with Bloomberg Television.
The surge in bitcoin prices has been accompanied by slightly brighter signs of blockchain trends, according to Darshan Bathija, chief executive officer and co-founder of Singapore-based crypto exchange Vauld.
On-chain data shows that the number of addresses holding between one and ten bitcoins jumped from 689,000 to 694,000 between May 9 and 19, a “sign of confidence in the cryptocurrency’s recovery,” Bathija said .
The total market value of virtual coins has fallen about $420 billion to $1.36 trillion this month, according to CoinGecko data.
Bitcoin is down 56 percent from its record high set in November last year.