Cryptocurrency prices tentatively stabilized this morning after yesterday's market bloodbath that added to losses racked up over the last few months and eclipsed those of the major stock indexes, Axios' Matt Phillips writes.

Why it matters: Whether you think crypto is a potential life-altering technology or an elaborate tech-centered Ponzi scheme, the recent tumble shows what a market downdraft will do to speculative investments that produce no cash flows.

• Such investments — those that generate no dividends or corporate profits — tend to fare the worst when interest rates rise. And this year, rates have risen at one of their fastest clips in history, as the Fed focuses on knee-capping inflation.

Catch up quick: Bitcoin shed over 8% at one point yesterday, briefing falling below $30,000 before recovering slightly. It has lost over 25% in the last 30 days and is worth less than half of its market value from six months ago.

• Ether, BNB, XRP Solana’s SOL and binance suffered similar fates.

What's next: With the recent unnerving drop in equity markets, it's the kind of moment when you might expect heightened chatter about the Fed relenting on its tightening plans. But signs point to the Fed being less reactive to markets than it was in the not-too-distant past, Axios' Neil Irwin writes.

• Translation: Crypto investors shouldn't count on the "Fed put" — the central bank’s recent tendency to pivot toward looser money whenever markets drop — to rescue a potential bear market this year.

The biggest difference this year is that previous tightening actions were preemptive — aimed at preventing inflation. This time, inflation is a major problem in the here-and-now, not a distant threat, Neil writes.

• And for all the discussion of recession risk, Fed officials emphasize signs of economic robustness, like a very strong labor market and strong household and corporate balance sheets, that may cushion the blow of higher rates.

Correlation, specifically with traditional tech stocks, is something crypto cannot escape right now, even though some market participants expect a decoupling down the road.

• But as Matt writes, crypto has traits that investors are now trying to shed en masse.
• A Goldman Sachs basket of 11 stocks that are especially sensitive to crypto pricing was clobbered by more than 14% yesterday alone. The basket's down about 68% over the last six months, compared to the S&P 500's 15% decline and the Nasdaq's 27% fall over the same period.

The bottom line: Assume the crash position.

Go deeper.

TerraUSD, a so-called “algorithmic stablecoin,” was anything but stable over the past day or so, Axios' Kia Kokalitcheva writes.

• After breaking a bit from its $1 peg over the weekend, it dove yesterday, sinking as low as $0.69.

Catch up quick: Unlike more traditional stablecoins, which are backed by other financial assets like Treasurys, cash and other dollar debt, algorithmic stablecoins aim to retain their peg via financial engineering.

• In the case of TerraUSD, if it drops below $1 traders can push its value up to stabilize it by “burning” — or destroying — its token and receiving units of its sister cryptocurrency, LUNA. Conversely, they can burn Luna tokens in exchange for TerraUSD to push the latter’s price down.
• LUNA’s price dropped by 50% yesterday as the Luna Foundation Guard, the organization in charge of maintaining TerraUSD’s peg, said it would lend out $1.5 billion in bitcoin and TerraUSD to help stabilize the token’s price (it ultimately had a moderate effect).

Felix Salmon’s thought bubble: “UST isn’t big enough that its failure poses any systemic risk. But it does prove that investors can’t just 'trust the algorithm' — an article of faith that underpins much of the crypto world.”

With crypto valuations in turmoil, one attractive proposition is to try to make money from volatility while hedging all price risk, Felix writes.

Why it matters: Crypto broker FalconX says it's the first-ever company to offer crypto swaps in full compliance with U.S. regulations and that it has already entered into a transaction "in the tens of millions of dollars."

• The swap transaction carries a yield "in the low teens," per FalconX.

The big picture: FalconX offers traditional institutional investors access to crypto derivatives without them ever having to own any crypto.

How it works: Hedge funds, family offices, and the like deposit dollars with FalconX, which then converts the dollars into ether.

• FalconX then hedges the ether price in the forward market and stakes the ether at Figment to earn a yield.
• It then swaps that yield back into a double-digit fixed rate for the original investor.

What they're saying: FalconX CEO Raghu Yarlagadda tells Axios that while it's possible for investors to do the same trade using offshore brokers, in doing so they're "taking much more risks than warranted."

• Because FalconX is regulated by the National Futures Association, the Commodities and Futures Trading Commission, and ISDA, Yarlagadda hopes to attract investors who seek reassurance on counterparty risk while still getting calibrated exposure to crypto.

What's next: Yarlagadda is putting together a basis trade swap, where clients can lock in the spread between spot and futures exchange rates.

• Once that's in place, the two products can be combined — and investors can simultaneously make money on both the basis trade and the staking, still without having any exposure to crypto price fluctuations.

🇸🇻 One person —err, country— buying the dip is El Salvador: President Nayib Bukele said the country just spent $15.5 million to add 500 bitcoin to its balance sheet. (CNBC)

🏦 In its ironically timed new report, the U.S. Fed warns of stablecoin runs. (Coindesk)

👅 Madonna unveiled her first NFTs (in a collab with Beeple) and they are — naturally — NSFW. (NYT)

Today's dose of culture is just a couple of tweets that made Kia chuckle. IYKYK!