A massive sale of cryptocurrency holdings produced a capital outflow of 200 billion dollars in that market in the last day alone and led bitcoin to lose more than 11% of its value, returning to 2020 levels, in a context detachment of risk assets in the face of rate hikes by the main central banks.
This widespread drop in the cryptocurrency market not only affected bitcoin – the most widely used crypto asset in the world, which stood at around $ 28,000, erasing almost a year of gains and reaching the lowest level since December 2020 – , but to several of the main crypto currencies. According to the Bloomberg news agency and the CoinMarketCap portal, Ehter fell by 20%, Solana by 30% and Dogecoin by 25%.
One of the main reasons for the declines is the outflow of capital from risk assets in general due to the negative economic outlook and the rise in interest rateswhich produced falls amounting to more than 15% and 30%, in stock markets such as the S&P 500 and the Nasdaq, respectively,
But, in addition to this, cryptocurrencies were particularly affected by the runs of the last days in the so-called “stablecoins”, which generated a loss of confidence in digital currencies in general.
“Stablecoins” are digital currencies used as a store of value whose value is tied in a parity relationship to the price of another currency or asset, generally (hence their name) more stable, such as the dollar, gold or raw materials; pretending to eliminate, in this way, the intrinsic volatility that cryptocurrencies possess.
Among the main “stablecoins”, whose market value amounts to more than US$ 100,000 million, Tether and TerraUSD stand out, which, in recent days and in the face of a bull run, both lost the one-to-one parity they had with the dollar. .
In the case of TerraUSD, the third largest volume in the market, its value fell by up to 80%, reaching less than 30 cents per dollar and then recovering to 62 cents, while Tether, the most used, fell slightly to 97 cents. cents per dollar.
Cryptocurrencies were particularly affected by the runs of the last days in the so-called “stablecoins”
One of the reasons for the crash is the growing skepticism about whether these currencies have enough reserves to be able to maintain parity with the dollar..
Unlike Terra, whose parity depends on complex algorithmic calculations, in the case of Tether, the owner company (of the same name) stressed that each of its coins was backed by equivalent dollars.
However, after the publication of a judicial agreement with the New York prosecutor’s office, it was revealed that, in reality, Tether depended on other assets, including short-term debt; and the market fears that said “stablecoin” does not have enough reserves to attend a bull run.
According to Edul Patel, CEO of Murdex, a cryptocurrency investment platform, “the crash of stablecoins has impacted the crypto market” and, in the face of it, bitcoin could have even more room to fall.
Faced with the situation, the secretary of the United States Treasury, Janet Yellen, reiterated last Tuesday her call for Congress to develop an “adequate regulatory framework” for “stablecoins”.
The Luna cryptocurrency falls more than 99% and its developers freeze its blockchain
Terraform Labs, the company behind the cryptos Terra (LUNA) and Terra USD (UST), restarted the chain of blocks in which both circulate, to avoid attacks against the network, after the collapse of the system that led to the collapse of more than 99% of the price in Luna in just four days.
In that period, the blockchain’s flagship crypto went from around US$64 per unit to less than US$0.01, following a massive flight of users from UST, its associated stablecoin, which lost popularity. parity 1 to 1 that they had to maintain with the dollar, and that caused the collapse in its price.
The company’s decision was to avoid attacks on the protocol, since its possession grants voting power in decisions on the network.
This caused many of the world’s leading cryptocurrency exchanges, such as Binance or Bitrue, to decide to delist Luna from their sites.
Just a week ago, Luna was one of the top ten cryptocurrencies with the largest market capitalization, with more than $28 billion in asset valuation. Today it is less than US $ 500 million, according to data from the specialized portal Coinmarketcap.
The incentive system proposed by the company, which delivered a UST -valued at one dollar- in exchange for the amount of Moons necessary to buy it from its holders, had made this crypto grow exponentially in the last two years.
However, the combination of a crisis in the equity market due to the decision of the Federal Reserve (FED) to raise the interest rate added to the panic triggered by the loss of parity of the UST last weekend, triggered the call “death spiral” for the ecosystem, which collapsed in a matter of days.
