Cryptocurrency luna drops to $0 as UST falls off the peg; bitcoin goes up

Bitcoin rallied on Friday, bouncing above $30,000 despite ongoing problems with stablecoin TerraUSD, which caused panic in the cryptocurrency market.

The world’s largest cryptocurrency bitcoin was trading at around $30,262.85 as of 4 am ET on Friday, according to data from CoinGecko, up 8% in the last 24 hours after falling to levels not seen since. the end of 2020 earlier this week.

However, the digital currency is still down 16% in the last seven days.

The recent cryptocurrency crash, which saw billions of dollars wiped out of the market, was largely triggered by the fall of a controversial stablecoin known as TerraUSD or UST, which was supposed to be pegged to the US dollar. .

The UST, however, lost its parity and as of Friday was trading at around 14 cents, according to data from CoinGecko.

Luna, a token closely associated with UST, is now worth $0 as a result.

UST and luna are linked. UST is dubbed an algorithmic stablecoin, meaning that its $1 peg should be governed by the underlying code. This is fundamentally different from other stablecoins like tether and USDC which are backed by real-world assets like bonds. UST has no real-world reservations.

The UST algorithm works through a complex system of minting and burning tokens to maintain price stability. A UST token is created by destroying some of the luna related cryptocurrencies to maintain dollar parity.

But extreme market volatility put the UST to the test and failed to maintain parity.

Adding further complications is the fact that the Terra blockchain, which underpins UST and luna, has stopped processing transactions twice in less than 24 hours.

In addition to the UST saga, cryptocurrency markets have been hit by a number of other headwinds, including higher inflation and interest rate hikes that have caused a sell-off in global equity markets. Cryptocurrency price movements have been correlated with equity markets.

“The Luna/UST situation has hit market confidence quite a bit. Overall, most cryptocurrencies are down [more than] 50%. Combining this with global inflation and growth fears does not bode well for cryptocurrencies in general,” said Vijay Ayyar, vice president of corporate and international development at exchange Luno.

Even bitcoin’s big rally may not be sustainable.

“In such markets, it’s normal to see 10-30% bounces. These are typically bear market bounces, testing previous support levels as resistance,” Ayyar said.

Leave a Reply

Your email address will not be published.