By Hanniz Lam
Stablecoins are causing havoc in the cryptocurrency markets, wiping out billions of dollars in value and forcing liquid cryptos like Bitcoin to plummet.
In the increasingly volatile crypto market, stablecoins claim to be a comparatively safe haven. They are intended to be linked to a fiat currency and are commonly pegged to the US dollar 1:1.
This means that an investor should be able to sell a token at any point, and get $US1 in return.
The stablecoin TerraUSD, or UST, crashed almost completely at one point this week and lost its $1 peg (€0.96) to the dollar, tanking to a low as $0.26. Meanwhile, TerraUSD’s sister token Luna fell by more than 97 per cent on Wednesday, dropping below $0.22. By Friday, Luna collapsed to nearly $0.
Terra was ranked among the 10 most valuable cryptocurrencies and peaked at almost $120 (€115.28) last month.
People have had their savings wiped out by the cryptocurrency bloodbath and homes are under threat as an eye-watering $US200 billion ($291 billion) was slashed from the crypto market in just 24 hours.
The mayhem in the cryptocurrency world was the result of a massive sell-off, as spooked investors raced to offload their assets — but nobody knows what caused two of the industry’s biggest players’ to crash.
Bitcoin has plunged from a high of $US69,000 to below $US25,500 this week.
How long crypto’s collapse might last is unclear. Cryptocurrency prices have typically rebounded from major losses, though in some cases it took several years to reach new heights.
Heartbreaking stories have been shared on the TerraLuna Reddit page with moderators pinning a list of suicide prevention hotlines from around the world to the top of the page.
“I lost over 450k usd, I cannot pay the bank. I will lose my home soon. I’ll become homeless,” wrote one person on the forum.
Another spoke about losing all their life savings after buying Luna for $US85, while others said they had lost $US50,000 in one night.
“I should’ve cashed out when it was $100, then I would have been up $25,000,” one user said.
“But I got greedy hoping to get more money so I can at least afford a down payment for a house for my family. I guess no house and savings then.”
Terra and luna’s creator, South Korean Do Kwon, described the crash as an “attack”.
“I’ve spent the last few days on the phone calling terra community members – builders, community members, employees, friends and family, that have been devastated by UST depegging,” he tweeted on Saturday.
“I am heartbroken about the pain my invention has brought on all of you.”
The broad-based plunge has triggered heavy selling in the cryptocurrency market as investors look to offload their holdings and minimise losses amid the ongoing uncertainty.
Should long-term cryptocurrency investors use the extreme volatility in the market to place their bets? Or, should they sit this period out.
‘Long-term investor always wins’
Sumit Gupta, Co-founder and CEO of CoinDCX, on Thursday suggested investors to hold on to their investments for long term if they have a strong conviction.
“I wouldn’t recommend to start selling out of fear and panic. This isn’t happening for the first time! Remember a long term investor always wins,” the CEO of CoinDCX said.
He further said, “The financial markets are behaving irrational these days. It’s not just crypto; the impact is been seen around the equity market as well.”
‘Do your own research’
The Coinswitch CEO Ashish Singhal added: “Your actions should follow a sound assessment. Don’t buy because others are. Don’t sell because others are. Do your own research.”
The broad plunge in the crypto complex, driven by the collapse of the TerraUSD stablecoin, hit major tokens hard.
Ethereum, the world’s second-largest cryptocurrency, tumbled nearly 15% today to $1,700, its lowest since June last year.
Unlike previous sell-offs in broad financial markets, when cryptocurrencies have been largely untouched, the selling pressure in these assets this time has undermined the broader argument that they are dependable stores of value amid market volatility.
Meanwhile, a senior watchdog official has said that global market regulators are likely to launch a joint body within the next year to better co-ordinate cryptocurrency rules.
