Technology

The cryptocurrency debacle caused losses of more than 200,000 million dollars in a single day

Illustrative file photo of the representation of a bitcoin.  April 24, 2020. REUTERS/Dado Ruvic
Illustrative file photo of the representation of a bitcoin. April 24, 2020. REUTERS/Dado Ruvic

A cryptocurrency selloff wiped out over $200 billion of market value in just 24 hoursbased on estimates from the price tracking website CoinMarketCap.

The broad crash of the cryptocurrency complex, fueled by the collapse of the TerraUSD stablecoin, hit major tokens hard. Bitcoin plunged as much as 10% in the last day and hit its lowest level since December 2020, while Ethereum fell as much as 16%.

The situation showed signs of spreading further on Thursday, as crypto-related stocks in Asia also tumbled. Hong Kong-listed financial technology company BC Technology Group Ltd. closed down 6.7%. Japanese company Monex Group Inc., which owns the TradeStation and Coincheck markets, ended the day down 10%.

FILE PHOTO: A representation of cryptocurrencies is seen in this illustration taken on January 24, 2022. REUTERS/Dado Ruvic/Illustration
FILE PHOTO: A representation of cryptocurrencies is seen in this illustration taken on January 24, 2022. REUTERS/Dado Ruvic/Illustration

As central banks around the world move to aggressively tighten monetary policy to fight inflation, digital tokens have faced selling pressure amid a broader flight from risky assets. S&P 500 futures lost 0.8% on Thursday, trailing losses in the benchmark MSCI Asia Pacific Index.

However, investors in the cryptocurrency space are no strangers to wild swings in the market, and Bitcoin and Ethereum quickly cut losses to trade 4.2% and 9%respectively, as of 16:45 Hong Kong time.

Brian Armstrong, CEO of Coinbase Global Inc (Samyukta Lakshmi/Bloomberg)
Brian Armstrong, CEO of Coinbase Global Inc (Samyukta Lakshmi/Bloomberg)

no guarantees

Coinbase Global, one of the most important cryptocurrency platforms worldwide, announced losses of USD 430 million in the last quarter and a 19% drop in its number of users. But those disappointing data for its investors were not the most serious: The company updated its terms of use and in them admitted that in case of bankruptcy, its millions of users could lose all the cryptocurrencies stored in their accounts.

“Because crypto assets in escrow can be considered the property of a bankruptcy estate, in the event of bankruptcy, crypto assets that we hold in escrow on behalf of our clients may be subject to bankruptcy proceedings and such clients may be treated as our general unsecured creditorsCoinbase wrote in the presentation.

Coinbase said in its earnings report on Tuesday that it holds $256 billion in both fiat and cryptocurrencies on behalf of its clients. However, he admitted that if he were to ever file for bankruptcy, those crypto assets he holds in escrow on behalf of his clients could be at risk. Coinbase users would become “unsecured general creditors,” meaning that they have no right to claim any specific property of the company in the proceedings, as explained fortune.

Ownership of a cryptocurrency by an individual is assumed to be immutable and absolute; that is one of the attractions most promoted by the promoters of the blockchain economy. But when a user creates a Coinbase account, they often end up storing their cryptocurrency in a Coinbase-controlled wallet, meaning the person is relinquishing at least some control over their own funds to them.

Access to a crypto wallet is governed by a private key, which is a long string of characters that acts like a password. Without the key, the cryptocurrencies in the wallet cannot be accessed. At Coinbase, the company holds the private key and allows users to access the funds within the wallet using a more conventional password. The setup makes it easy for users to log into their accounts by remembering that easier password. Nevertheless, it is Coinbase that ultimately determines whether a user has access to those assets.

(With information from Bloomberg)

KEEP READING:

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Third Largest Stablecoin Loses Its Dollar Peg, Hitting Crypto Market

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