Could the next crypto collapse flow through to ASX shares?

The LUNA token, meant to keep UST pegged to the US dollar, just crashed more than 99%.
The post Could the next crypto collapse flow through to ASX shares? appeared first on The Motley Fool Australia. –

ASX shares sold off yesterday, with the All Ordinaries Index (ASX: XAO) closing down 1.8%.

That came on the same day Aussie investors awoke to news of a major crypto collapse, as TerraUSD (CRYPTO: UST) – intended to be pegged to the US dollar – plunged to 30 US cents.

But the sell-off in ASX shares was caused more by the previous day’s heavy losses in US markets, along with persistent investor concerns over rising interest rates and a possible slowdown in global growth, than the crypto rout.

What’s happening with UST

As the Motley Fool reported here yesterday, crypto markets ultimately rely on investor confidence. And investor confidence in UST and Terra (CRYPTO: LUNA) – the token that’s meant to keep UST pegged right at US$1 – evaporated over the past days.

Some stablecoins are backed by fiat currencies or other crypto holdings.

Terra had several billion dollars’ worth of Bitcoin (CRYPTO: BTC) – the price varies depending on the date you value the Bitcoin – in reserve, which it’s been selling to try to support its UST dollar peg.

But the crypto was also largely reliant on LUNA to hold that peg, enabling crypto investors holding UST to swap it for US$1 worth of LUNA at any stage.

Clearly, though, none of these measures was enough.

At the time of writing, CoinMarketCap tells us that UST is down 76% over the past 24 hours, trading for 19.6 US cents. A long way from it US$1 peg.

As for LUNA, it’s gone close to zero, down 99.3% over the past 24 hours to 0.57 US cents.

Commenting on the carnage, Michael Gronager, CEO of crypto data analysis firm Chainalysis, said (courtesy of The Australian Financial Review):

What the crypto industry is learning right now is, what is enough? How much backing do you actually need to support the stablecoin? All of these projects start on a sunny day when everything works, but when the storm comes, they might break, and we find out whether they invested enough in that problem.

Could the next crypto collapse flow through to ASX shares?

ASX shares don’t appear to have been directly impacted by the crypto crash.

But next time we might not be so fortunate.

According to Gronager (quoted by the AFR):

My assessment is this won’t flow through to traditional markets this time round, but probably will next time.

Now it’s isolated to a relatively small number of people, but the more you tie up an asset class that is not protected, not well understood and doesn’t have the right transparency, then of course there’s more risk, and of course it will flow through.

Chainalysis’ own data shows a large uptick in institutional money going into crypto and DeFi projects.

“You could call that a win for crypto, but at the same time it creates another destabilising factor in markets,” Gronager said.

But, he added, “This will have compounding effects that could cause other things to happen, ideally not tomorrow, but let’s see.”

For now, ASX shares have shrugged off any concerns in the collapse of what was one of the world’s biggest cryptos by market cap. At the time of writing, the All Ords is up 1.75%.

The post Could the next crypto collapse flow through to ASX shares? appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

More reading

Crypto crash: Why Bitcoin, Ethereum, and Dogecoin are struggling again
Is this the start of a long crypto winter?
How are Australia’s Ethereum and Bitcoin ETFs faring on their first day?
Bitcoin price plunges below US$30,000. What’s going on?
Why should I buy Bitcoin ETF shares instead of just buying Bitcoin?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin and Terra. The Motley Fool Australia has positions in and has recommended Bitcoin and Terra. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US & HK* Trades. Click Here!