Looking back at a week full of pain in the virtual currency market
In January, hedge fund star Mike Novogratz shared a picture of a new tattoo on his left bicep. It was a picture of a wolf howling when the moon was high and a banner with the word “Luna” – the digital currency then traded at 78 USD.
“I’m officially a Luna follower,” said the hedge fund investor Fortress. Currently, he is the founder and CEO of Galaxy Digital – an investment management company that aspires to become the “Goldman Sachs of the crypto world”. In early April, Luna peaked at $116 after being enthusiastically “hunted” by many retail investors.
This week, though, Luna has become worthless. The price of Luna fell below zero, after TerraUSD also fell despite being designed to pegged to the USD.
It’s unclear what Novogratz will do with his tattoo. The CEO of Galaxy was not immediately available for comment. However, the collapse of Luna and Terra has left a great deal of pain for the $1.3 trillion global cryptocurrency market. “Coins come and coins go” – thousands of digital coins have “died prematurely” since the birth of Bitcoin in 2009. However, Terra’s failure marks a memorable event, as this is a stablecoin only simply follow the USD.
Luna’s sudden “death” comes at a time when cryptocurrency prices are generally down and raises important questions about the efficiency of the entire cryptocurrency market. In just a week, Coinbase’s valuation has plummeted, Bitcoin’s price also broke the $ 30,000 mark for the first time since last summer and so did Tether.
Many global financial markets have also fallen sharply in recent weeks, as investors worry about inflation and rising interest rates. But what’s going on in the crypto market is even more intense.
This development is overshadowing claims of digital currency as a “hedge” against inflation or acting as a kind of digital gold, let alone that many crypto believers are proud of the potential of digital currencies. coin will become the mainstay of the new global financial system.
Research firm CryptoCompare said Luna was “the largest drop in value this time around when it comes to a single project in the history of the cryptocurrency market.”
Luna’s debacle is “one of the biggest crypto disasters I’ve ever seen,” said Ran Neuner, a well-known cryptocurrency trader. This is really a wake-up call, he said.
Many of those who pursue crypto projects have always believed in coins. Michael Sonnenshein, CEO of crypto investment firm Grayscale, said in April: “On average, each government will cause a large fluctuation in their currency every 27 years. Investors or people who wake up will see it. Their purchasing power drops overnight, sometimes by 10%.”
However, the turmoil of recent days shows how investors make money from this market like playing dice. TerraUSD’s model is experimental only. Typically, stablecoin operators say that the value of that token is pegged to USD at a 1:1 exchange rate.
In contrast, Terra is backed by an algorithm that links to Luna to keep its USD pegged rate under control. That is, if TerraUSD drops in price, the exchanges will use Luna to cancel the amount of TerraUSD in circulation. However, Terra’s $1 value began to decline on Monday as confidence in the model was shaken and ended the day at 90 cents. By Friday, TerraUSD continued to drop below 15 cents. Multiple attempts to rescue the coin have failed, and on Thursday, the Terra blockchain was temporarily down.
The oldest and largest digital currency – Bitcoin, down 11% Monday and 12% so far this week. Since November 2021, Bitcoin lost more than 50% of its value. The market sell-off is also a reason behind that. But the failure of Terra – once one of the top 5 stablecoins, also had consequences.
Terra’s size is relatively small, so the collapse of this coin does not create a “domino effect” on the virtual currency market. More importantly, the event raised concerns about potential uncertainties in other stablecoins, including the biggest ones like Tether. On Thursday, Tether lost its $1 peg, as the coin’s price fell to 95.11 cents.
Andrew Beer – member of the board of management at Dynamic Beta investment company, said: “Investing Terra is like putting your money in a bank in Iran with 20% interest and then they suddenly close. Good luck. Good luck getting your money back or understanding what happened.”
Tether CTO, Paolo Ardonio, pledges to protect the coin’s USD peg at all costs. This week, he said he is preparing to sell some of the US government bonds that Tether has amassed, worth about $40 billion. However, a failure when Tether loses its peg could be catastrophic for the crypto market. That’s because, some estimates suggest that 70% of Bitcoin purchases are made using this stablecoin.
Ingo Fiedler, a professor at Concordia University in Montreal who runs the Blockchain Research Lab, said: “If Tether no longer trades at $1, it will lose its peg. all markets trade with Tether.”
However, Ilan Solot, president of crypto hedge fund Tagus Capital, said the market has faced unwarranted criticism over the past week. He believes that Tether is stronger than “rival” coins that have failed and has a lot of potential. Moreover, the possibility of Tether falling into a situation like Terra is very unlikely.
Chaos affects not only the price of tokens or the peg of stablecoins, but the market as well.
On Tuesday, cryptocurrency exchange Coinbase said in its first-quarter financial report that the number of traders and trading volume on the platform have decreased compared to the previous quarter. Coinbase’s capitalization has lost about three-quarters since its IPO last year, with the stock down 32 percent this week alone to $72.
Meanwhile, year-to-date, Nasdaq is down 27% as technology stocks that were once hugely popular with investors all tumbled.
Edouard Hindi, CIO of digital asset management firm Tyr Capital said: “A lot of holders of tech and crypto stocks have lost their money. They’re selling in panic and that’s what’s driving the market as a whole. downward.”
The falling cryptocurrency market is also affecting large investors. Perhaps the most notable case is the government of El Salvador, which adopted Bitcoin as a legal currency last year. Despite Bitcoin’s price drop, the country’s President Nayib Bukele spent more money to buy this digital currency. Since last year, El Salvador has spent more than $100 million buying Bitcoin, and the value of Bitcoin the country has accumulated dropped to $72 million this week.
Hector Torres, president at law firm Torres in El Salvador, commented: “Is this bet worth it? We don’t know. Why invest in Bitcoin when we need the road fixed? parlor or wall?”
The cryptocurrency market has shown “extraordinary strength” and survived “near-death” times. For example, last year, this market lost 30% of its value in just 1 day when China banned Bitcoin mining.
However, this week’s volatility is difficult to convince institutional investors – who are already skeptical about this market. Moreover, this trend also shows that instead of creating a path towards building a new, decentralized financial system, cryptocurrencies still have the potential to be a “bet” for some investors to prefer. risk get-rich-quick.
Refer to FT
at Blogtuan.info – Source: genk.vn – Read the original article here
