If this year has been hard for companies on the stock market, for cryptocurrencies it has been a year of purging. In almost five months, these digital assets have erased half of their market value, going from 2.22 billion to 1.12 billion dollars, according to data at the end of mid-May published by the specialized site Coinmarketcap. Bitcoin, the most popular cryptocurrency, was struggling to break the $20,000 ceiling, down 56% from the record price it set just in November 2021. And the Bloomberg index that tracks major cryptocurrencies is down 63% from its all-time high. six months ago.
The disasters did not stop there. The catastrophic scenario became a reality for stablecoins, a type of virtual asset that links its value to other assets in the financial world, such as bonds or currencies. Such was the case of the terra platform (UST), which issues stablecoins or stable coins, and these in turn are backed by another cryptocurrency called luna. The mechanism is self-governed by an algorithm that keeps the price stable and theoretically pegged to one dollar. But this whole system depends on the stability of the moon. When the moon plummeted to zero earlier this month, Terra plummeted as well. “I am very disappointed in how this incident with UST/LUNA was handled,” wrote Changpeng Zhao, the founder of Binance, the cryptocurrency exchanger and one of the promoters of the South Korean firm Terraform Labs, creator of the Terra blockchain.
Binance for the moment does not want to delve into the subject and refers to these messages from its also CEO. But the problem is not solved and there is no clarity about what will happen. It’s just a matter of looking at the market value of UST or terraUSD, which went from a record high of nearly $18.8 billion to $1.4 billion in a span of eight days, according to data from Coinmarketcap.
It is evident that the crash of the fourth most popular stablecoin has increased the pressure on other cryptocurrencies or larger stablecoins. An example of this is tether, which accumulates about 75,671 million dollars and is the one with the largest market share. Tether, like terra, has the particularity of directly exchanging fiduciary money for cryptocurrencies. Due to its size and these characteristics, this stablecoin is seen as the oil that greases the ecosystem.
That is why it has raised alerts among various analysts, because since the beginning of May, the price of tehter, which is linked to the dollar, has not managed to return to the level of one dollar.
“If confidence cannot be restored to 100%, which today does not seem to have ways to restore it, we begin to see a stronger risk that we will see debacles like the one on the moon,” says Luis Gonzali, co-director of investments at the asset manager Franklin Templeton.
For the moment tether has stayed afloat. If the same thing happened to Terra with a moon, it would have a greater impact due to the amount of cryptocurrencies that run on this platform. Investors have already begun the exodus: Some $7 billion has flown out these days since it momentarily lost its peg to the dollar last week, according to data from CoinGecko.
“Today is the litmus test, if the (cryptocurrencies) that remain alive manage to pass a restrictive period of liquidity, I think they are here to stay,” says Gonzali.