Stablecoins are sending shockwaves across the cryptocurrency markets, wiping out billions of dollars in value and forcing liquid cryptos like Bitcoin to fall, causing consumers to lose their money.
In the increasingly volatile cryptocurrency world, stablecoins claim to be a comparatively safe haven. This is because they are intended to be linked to a fiat currency and are commonly pegged to the US dollar 1:1. Recent developments, however, have demonstrated that they are as volatile as other cryptocurrencies.
One of the examples is Luna, a cryptocurrency linked to the stablecoin TerraUSD. Luna was worth $0.01862 at midday Thursday, according to coinmarketcap.com. Its downfall occurred within a single day. Luna was one of the most valuable cryptocurrencies at the time.
Luna is a traditional cryptocurrency founded in South Korea linked to the Terra stablecoin. Terra is, in turn, expected to be pegged to the US dollar. People were meant to be able to trade one for the other if one of the two dropped below that price.
People could exchange Terra for Luna if it were valued at less than $1. People could acquire $1 of Luna and then swap it for more than a dollar of Terra if Terra traded for more than $1.
The cryptocurrency market is downturn as investors abandon what they perceive to be riskier bets due to economic fears. For instance, in November 2021, Bitcoin reached an all-time high of $68,990. It is now worth $28,679.
The coin’s collapse comes amid a general downturn for cryptocurrency, with many coins losing a quarter of their value in the past 24 hours.
Investors appear to be moving away from cryptocurrency and towards less risky investments in the face of global inflation. Shares in Coinbase, the largest crypto exchange in the US, dropped 15.6 per cent overnight on Tuesday after it posted net losses of $430m (£348m), far worse than analysts were expecting.
The news has raised questions about whether the market has reached an expected cooling-off period – previously dubbed a “crypto winter” – or a more permanent chill, perhaps a “crypto ice age”.
However, the coin can recover, but the situation is currently very unpredictable. On Tuesday, do Kwon, founder of Terraform Labs, tweeted, “Close to unveiling a $UST recovery plan.” “Hang tight.”
“I recognise the last 72 hours have been tremendously difficult for all of you – know that I am determined to work with every one of you to weather this crisis, and we will build our way out of this,” he said.