Cryptocurrency instability over the Luna incident
Terra Luna's collapse and recent sell-offs suggest that this type of business remains risky and highly experimental.
Last week, the cryptocurrency market was constantly fluctuating. Bitcoin price at one point dropped to $25,400, the lowest since the end of 2020. Luna and stablecoin UST - two tokens that have always been among the world's strongest cryptocurrencies for a long time - plunged, causing players to lose money. The cryptocurrency market in general also became gloomy when more than 300 billion USD was wiped out in just a few days.
"The crypto world is falling into a full-blown crisis. The fragility is shown in the fact that digital currencies are all in the process of testing and unregulated," the New York Times commented.
The cryptocurrency market is going down so fast that influencers can't do anything about it. Artists like Kim Kardashian, or tech moguls like Elon Musk have posted positive messages about cryptocurrencies, but things are not getting better.
According to some experts, the past period has been scarier than 2018's "crypto winter", which has far-reaching effects because the number of people and organizations holding crypto has been more crowded than it was four years ago. . Observers even compared it with the onset of the 2008 financial crisis.
"This is like a hurricane," said analyst Dan Dolev, who is in charge of crypto companies and tech finance at Mizuho Group.
During the pandemic, more people are learning and participating in the cryptocurrency market. According to Pew Research Center data earlier this year, 16% of Americans own cryptocurrencies, up from 1% in 2015. Major banks like Northern Trust and Bank of America also joined the ranks of crypto-backed companies. number.
The rapid decline in the past week has had serious consequences, sweeping away the assets of many people. Since the beginning of the year, the Bitcoin price has dropped by as much as 40%.
How long the cryptocurrency slump can last is unclear. "It's difficult to predict. It will take a lot more time to analyze if the market stays the way it is," commented Charles Cascarilla, founder of blockchain company Paxos.
Uncertainty of Cryptocurrencies
Cryptocurrencies hit a peak in November 2021, touching nearly $70,000 per coin. But since then, its price has dropped by more than 50%. Things took a turn for the worse last week, though, when TerraUSD collapsed. Stablecoins are digital currencies that are developed on the blockchain and have a stable value by "imitating" the value of fiat currencies such as the USD or the Euro. Many traders use them to buy other cryptocurrencies.
TerraUSD has the backing of well-known and trusted venture capital firms, such as Arrington Capital and Lightspeed Venture Partners. But according to Kathleen Breitman, co-founder of blockchain company Tezos, that gives a "false sense of security" for those who pour a lot of money into them without doing their due diligence.
In fact, TerraUSD is not backed by cash, treasury or other traditional assets like Tether (USDT) or Binance USD (BUSD). Instead, its stability comes from algorithms that associate this stablecoin's value with a "brother" cryptocurrency called Luna. Last week, Luna lost almost all of its value. That immediately had an impact on UST, causing it to drop as low as $0.23.
Stablecoin volatility attracts attention in Washington. "We really need a regulatory framework," Treasury Secretary Janet Yellen said at a congressional hearing on May 12. “Over the past few days, we have seen the risks of stablecoins from the UST.”
The crypto ecosystem also became unstable after the collapse of Luna and UST. On May 10, Coinbase, one of the largest cryptocurrency exchanges in the world, reported a quarterly loss of $430 million, as well as the loss of more than two million active users. The company's share price is down 82% since its successful IPO in April 2021. Brian Armstrong, the CEO of Coinbase, tried to reassure users on Twitter, insisting the company was not in danger of bankruptcy.
In the face of the sharp decline of a series of cryptocurrencies such as Bitcoin, Ethereum, etc., some analysts say that there is panic in the market. Even so, the psychology of longtime players is still stable due to familiarity with fluctuations.
Hunter Horsley, CEO of Bitwise Asset Management, met over 70 crypto investors to discuss the market. "Many people said they didn't sell because every other property fell in price. Some even tried to take advantage of the price drop to buy more. Their view was: This is no fun, but it's not. Where to put assets anymore," Horsley said.
However, the sharp drop in cryptocurrencies has confused players. Just a few months ago, blockchain advocates were still very optimistic, even predicting the price of Bitcoin could rise to $100,000 per coin. “I never thought things would go bad so quickly,” said Ed Moya, a crypto analyst at exchange firm Oanda.