It was a terrible week for cryptocurrency holders as the market plunged and Bitcoin reached its lowest price since December 2020. Ethereum, BNB, XRP and many other cryptocurrencies also fell to their lowest levels in a long time. The crisis came after the collapse of the stablecoin Terra, which is designed to trade at a ratio of 1:1 with the US dollar.
TerraUSD (UST), the 11th cryptocurrency by market cap, is an algorithmic stablecoin that uses a host of cool conventions to ensure its value stays close to $1 as expected. Anyway, after floating $1 for about a year, it collapsed to 29 cents yesterday, bringing the market cap down from over $45 billion to less than $5 billion. It has since been crowded to 62 cents, yet that's still way off a dollar.
Likewise, Terra's support currency, Luna, has also fallen in dramatic fashion, going from $86 at the start of the week to its ongoing cost of 20 cents. Terra is designed so that traders can exchange 1 UST for $1 from Luna, regardless of the price of the floor cabinets
Du Kwon, Principal Designer for Terra form Labs, tweeted, "I understand that the past 72 hours have been very difficult for all of you - I know I'm determined to work with all of you to get through this crisis, and we're going to build our way out of this."
Terra's collapse has affected many digital currencies, most notably the largest of all: Bitcoin. At the time of writing, BTC is at $27,236, its lowest value since before the crypto boom at the end of 2020. Bitcoin has now lost nearly two-thirds of its value since it peaked at $69,000 in November 2021.
Ethereum is priced at $1,882, a level not seen since July of the previous year. Dogecoin, Solana, Cardano, BNB, Polygon and others also saw their costs drop this week as panic spread in the markets.
While Terra’s crash is primarily the reason for the removal of nearly $1 trillion from the cryptocurrency market this week, various factors, for example, other factors such as rising inflation and Russia’s invasion of Ukraine have exacerbated the problem.
MarketWatch reports that Terra's downfall could lead to regulators taking more scrutiny of the stablecoin. At Tuesday's hearing before the Senate Banking Committee, Treasury Secretary Janet Yellen said the Terra incident "simply demonstrates that this is a fast-growing product and that there are risks involved." on financial stability and we need an appropriate framework.”