Cryptocurrency markets are reeling after a widely used currency lost 99 percent of its value, leading to a significant decline in the value of a “stable” cryptocurrency.
The Terra Luna cryptocurrency fell from a high of $118 last month to $0.09 on Thursday. This drop has indirectly affected a digital currency pegged to the dollar, TerraUSD, which is usually stable.
This led to anxiety among investors, who rushed to get rid of their holdings of digital currencies, which in turn led to the decline in the market for those currencies.
The companies behind stablecoins are trying to ensure that those currencies remain equal in value with stable assets such as the US dollar – meaning that one digital currency is equivalent to one dollar, for example.
But on Thursday, the terra USD fell to $0.4, according to online trading site Coin Market Cap.
The value of Tether, the most popular stablecoin linked to the US dollar, also fell to an all-time low of $0.95.
The phrase “the collapse of the digital currency” topped the list of the most frequently used words on Twitter and the search engine Google.
It is reported that the total market value of all digital currencies combined today is $1.12 trillion, equivalent to about a third of its value last November. And 35 percent of this loss occurred this week.
Today, one bitcoin is worth about $27,000, according to CoinMarketCap — its lowest value since December 2020 — down from nearly $70,000 last year.
Ethereum, the second most popular digital currency, lost 20 percent of its value in 24 hours.
The collapse of the TerraUSD currency sparked what we used to call “panic waves”, as major financial institutions resort to selling assets in large quantities, and all speculators are trying to withdraw their money as quickly as they can, according to economist Francis Coppola.
“Panic is exactly what’s going on here,” Coppola says.
Today, Friday, Theraform, the company behind the TerraUSD and Tera Luna coins, took the unprecedented and controversial move to stop trading on its blockchain (a cloud database used for trading).
In a tweet on Twitter, Terraform said it had to take this step until it was able to rearrange its papers.
Earlier, de Coon, founder of Terraform Labs, tweeted: “I understand how difficult the last 72 hours have been for all of you – and I know I am determined to work with all of you to get us through this crisis, and we will find our way out of this crisis.” .
An operation has been outlined to save Tera Luna by launching more cryptocurrencies – but the loss of large sums has made many Twitter users plead with the company for help.
Meanwhile, Discord, the platform where investors debate emerging issues, posted an alert saying it had been “closed so that some do not post on it fears, uncertainty, doubts, and misinformation.”
At Tether, the CTO tweeted to reassure Tether speculators that the company had enough cash in reserve to pay anyone who wanted to sell.
Lawmakers and officials in a number of countries have called for regulation of the use of digital stablecoins.
At a Senate meeting on Tuesday, US Treasury Secretary Janet Yellen mentioned the TerraUSD collapse, once again calling for tough regulation.
“It simply shows that we are dealing with a product that is growing at a rapid pace, that there are risks to financial stability, and that we need an appropriate framework,” Janet said.
A report by the British Treasury last month included plans to regulate the use of stable digital currencies, which the report expects will become a “common means of payment.”