Last week cryptocurrencies suffered one of their hardest blows. What happened? .
LatinAmerican Post| Juan Manuel Londoño
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Leer en español: El mercado de las criptomonedas implotó: ¿El comienzo del fin?
In November of last year, the price of a bitcoin was around 70,000 dollars. However, this and other cryptocurrencies have been declining, to the point that last week the value of a bitcoin was 29,900 dollars and prices continue to fall. It is not an exaggeration to say that the situation is at a time of crisis.
But what are the reasons for this fall? Today in LatinAmerican Post we will try to explain this complicated situation a little better.
The Fall of Stablecoins
Stablecoins are cryptocurrencies that seek to fix their market value to some external reference. This can be the US dollar or even gold itself. The idea of these is that they serve as an alternative to the high volatility of certain currencies such as bitcoin. The idea is that a “unit” of a stablecoin should always be worth 1-1 with its fiat counterpart.
Now, why is it important to understand this term? Because it turns out that one of the big players in the stablecoin market, TerraUSD, suffered a resounding crash last week. The coin, which is supposed to always be worth $1, has lost 99% of its value. At press time TerraUSD is worth $0.6.
As a result of this crash, those who had invested in TerraUSD experienced huge losses, ranging from thousands of dollars to some users' life savings. Apart from the catastrophic losses for these users, this situation caused a crash in the price of all major cryptocurrencies, such as Bitcoin, Ethereum, and Solana.
El precio de la stablecoin TerraUSD (UST), cayó por debajo de $1 USD.— XWAP LATAM (@XwapLatam) May 10, 2022
Con la caída del mercado actual, la stablecoin ha tenido dificultades en mantener su paridad con el dólar. Esto causó que la criptomoneda LUNA, se desplomara en un 51% desde su máximo histórico. #LUNA #UST pic.twitter.com/oEMlfVqBhB
Inflation and Other Factors
The TerraUSD situation has caused a massive drop in investor confidence in cryptocurrencies. However, this is not the only reason why the values of these investments have plummeted.
One of these factors is the rising inflation that has taken place in the United States. Although it initially seemed that cryptocurrencies were immune to this phenomenon, lately we have seen how high inflation and tighter monetary policy have also affected crypto investors.
The political instability caused by the Ukraine war has also put pressure on global markets, indirectly affecting cryptocurrencies.
The Beginning of the End?
Although this crisis does not necessarily herald the end of cryptocurrencies, the truth is that it has lowered the mood of investors considerably. As always in such a volatile market, the future is uncertain. Crypto projects rely heavily on the trust of those who invest in them, and with the multi-million dollar loss stories that have been circulating on the internet these days, it is impossible to think that there will be no consequences.
The presence of big names like JPMorgan Chase, Morgan Stanley, and Goldman Sachs in the market gives investors some reassurance, but it's impossible to know for sure where things are headed.