Crypto Crash: seven questions to understand what is happening in the market

The financial market is currently experiencing moments of very high volatility. Fears about a new Fed rate hike, which triggered the collapse of major Wall Street indices, particularly stocks associated with technology segmentwas added crypto price collapsedragged down by the crypto crash Earth USDwhich is third in market capitalization and the priceor it became $ 0.47 from US $ 100 in a few days.

What are stablecoins?

To avoid the price volatility associated with the world of cryptocurrencies, the solid coins. These are tokens associated with the value of an asset in the traditional financial world that can be considered safer, such as “fiat” currencies (such as the dollar or euro), material assets such as gold or real estate. , or others. cryptocurrency. .

There are also ‘stablecoins’ that are not associated with any other currency but are controlled by algorithms to maintain a stable price.

What happened to Terra USD?

Unlike other stablecoins that have collateral from the physical world behind them, such as DAI or Ether, which are backed by dollars, the Terra project is based on algorithmic collateral, which is responsible for maintaining the parity of its price and the U.S. currency. This is a aspirational in the world of crypto: a currency that does not require support outside the blockchain network to function and guarantee return.

The operation is quite complicated. Anyone with 1 UST can immediately exchange it for the number of Luna cryptocurrencies needed to get an amount equal to the value of one dollar.

If at any time UST is worth less than $ 1, holders have this stablecoin incentive to buy them cheap, turn around, and exchange them for the equivalent of USD 1 with Luna. Conversely, if at any point TerraUSD trades above $ 1, incentives are aligned for traders to buy Luna, trade it for stablecoin, and then sell UST for more than $ 1 .

The fear of the markets after the last Federal Reserve rate hike volatility increased and negatively affected the prices of other “traditional” cryptocurrencies, such as Bitcoin, which in turn served as collateral for this stablecoin. In this way, many UST holders came out to sell big, after it lost its crypto reference value against the dollar.

This has happened in the past, but the similarity has quickly been regained. Instead, this time the imbalance extended over time and although Luna’s creators maintained the decline at 0.9 dollars per coin for a while, an uncontrollable price drop began.

Within hours, TerraUSD, the third largest in the market, saw its value fall by nearly 80%, reach less than 30 cents per dollar and then recover to 62 cents, while Tether, the most used, was slightly dropped to 97 cents on the dollar.

Can losses be calculated?

The overall collapse in the cryptocurrency market has made a drop more US $ 200 billion in its capitalization in the last 24 hours, according to the news agency Bloomberg and the gate CoinMarketCap.

For his part, the bitcoin, the most used cryptocurrency in the world, has fallen 11.3% in the past 24 hours and stands around $ 28,000reaching amounts less than $ 27,000 once, erasing nearly a year of gains and reaching its lowest level since December 2020. Its highest peak was $ 68,000.

It is the co-founder of TerraUSD, the South Korean Do Kwonunsuccessfully tried to stabilize the decline by resorting and exiting to sell his bitcoin holdings, which further pushed the price down.

Is this the end of stablecoins?

The market today seems to have no confidence in this type of project. In the midst of the tsunami, Tether (USDT), the world’s largest stablecoin, also broke its 1 -dollar parity on Thursday in a new day of panic in the cryptocurrency sector. The token sank as low as 0.98 cents.

With a market value of approximately $ 84 billion, Tethering is an essential tool for the range of crypto trades taking place in the market at any given time.. It is the most traded cryptocurrency to date, with more than double the volume of second place bitcoin in the last 24 hours at $ 178 billion.

Meanwhile, as the USDT tried to withdraw and reach the value of USD 1 again, the stablecoin generated by the Circle USD coin (USDC) had a slight upward movement and traded for the first time in twelve months slightly beyond a dollars.

“A lot of people don’t trust all stablecoin right now. I wouldn’t be surprised if many USDT holders saw what happened to Terra and now switched to cheap Bitcoin, ”Mati Greenspan, founder of crypto research group Quantum Economics, told Bloomberg.

What coverage do investors have?

Around the world, thousands of retail investors reported losses in the millions this week. In the face of the situation, U.S. Treasury Secretary Janet Yellen on Tuesday reiterated her call to Congress to move forward. an “adequate regulatory framework” for “stablecoins”.

What is happening to the rest of the market?

This is not easy for investors. The traditional financial market is also in big turmoil after the Fed raised rates to try to ease inflation and amid geopolitical tensions. This Thursday the major Wall Street indices are trading again, as in the last five rounds.

“The recent behavior of financial assets further increases systematic market risk. By entering the unsatisfactory phase of price adjustment after a bubble, the risk of the collapse of some associated fund or institution increases, ”they warn Delphos consultancy.

“What we see in the world of“ crypto ”will certainly have important consequences for many players in that segment. But as well as the endless collapse of actions on technological change. The domino effect of this sudden correction on all sectors that experienced excesses during the pandemic could affect the rest of the economy.

Where will the crypto business go?

In the midst of this turmoil, the crypto market is torn between panic and long -term betting. Hanna Shiuma, The VP of Wealth and Ank and member of the Argentine Chamber of Fintech, said: “This is a crash that has already happened at other times in the history of crypto. We are constantly going, building. What happens is every time this kind of thing happens. of of events, the market is clearingpeople are more educated, protect themselves a little more and take a crypto flight to quality and turn to Bitcoin and Ether ”.

while, Ariel ScaliterDirector of Blockchain and Cryptoeconomics diploma at UCEMA, said: “The blockchain industry is more than just cryptocurrencies. If you look at it in the short term, yes, it can be attributed to a lot of volatility and suffering, but in the long run, it means that bad businesses are cleaned up and only good projects are thriving. ”

Also for the CTO of Agrotoken: “This type of event generates winners and losers. We will see the transfer of human resources, talent, capital from investment funds to safer projects and that will boost in the industry.