Crypto’s unthinkable resurrection from the dead

Those announcing the death of crypto this week have been put in their place after a phenomenal resurgence on Friday.

Bitcoin bounced back on Friday after a rough few days, rising 14.08 percent (and counting) in the past 24 hours.

Ethereum, the word’s second most popular cryptocurrency, also rose 17.16 percent after falling earlier this week.

At the time of writing, Bitcoin is now at $43,600 while Ethereum sits at $3,000 AUD per coin. They have now returned to the price they had a week ago before social media turned into hysteria due to the sudden drop.

In the past week, bitcoin’s value fell nearly 60 percent from its all-time high.

An eye-watering $200 billion ($A291 billion) was taken out of the crypto market in just 24 hours, as reported by CoinMarketCap, while a decline in Asian stocks pegged to crypto indicated panic was spreading.

The blow fueled speculation that we may be headed for a “crypto winter” – a term used for a long period of time when many cryptocurrencies lose most of their value.

But elsewhere on cryptocurrency forums, cashed in buyers and those loyal to a revival were licking their lips and urging everyone within earshot to “buy the dip”.

Insiders have attributed the crash to concerns that the US Federal Reserve’s attempts to curb skyrocketing inflation would push the economy into recession, suddenly making less secure investments like cryptocurrency a seriously unattractive option.

But this week, a much more specific crisis was unleashed, sending shockwaves through the industry.

One solution to crypto’s instability was the invention of so-called “stablecoins” – cryptocurrencies “pegged” to the US dollar or other traditional assets, which in theory protected them from market carnage.

This week, TerraUST, an “algorithmic” stablecoin whose value is backed by a sister token known as Luna, broke that pivotal pin, which saw its value drop to just 30 cents.

The idea behind that arrangement is that if Terra fell below $1, it could be traded for Luna, who was supposed to provide stability — but this week, both crashed simultaneously, with Luna collapsing by a devastating 98 percent, with some investors losing their money. lost money. savings.

The same happened to fellow stablecoin Tether, which also broke its peg to the US dollar.

Crypto’s ‘Death Spiral’

While the crypto boom has attracted a legion of diehard fans, there have also been a slew of skeptics who warned of the market’s innate instability from day one.

Speak with CNN in the wake of the initial crash, Henry Elder, who heads decentralized finance at digital asset manager Wave Financial, said the current stablecoin crisis was “exactly the ‘death spiral’ many people predicted”.

Meanwhile, Dan Ashmore, Crypto Data Analyst at Invezz.com, also weighed in on the drama, claiming that one decision by Terra was the “key to their downfall”.

Ashmore noted that Terra founder Do Kwon announced earlier this year that bitcoin would be used as collateral in the event of a scenario where large amounts of UST were sold — a move that may have sealed his fate.

“This is the key, and it was a huge oversight by Terra. It makes little sense to collateralize an asset (UST) with a highly volatile asset (BTC). It makes even less sense if those two assets are correlated,” he said.

Crypto loyalists remain hopeful

However, many pundits – such as Balmoral Digital co-founder and portfolio manager Jesse Smythe – remained confident that crypto would “rebuild and recover” after the busy week.

In a statement, Mr Smythe said confidence had been “hit hard” and the system had “serious tensions”.

“We’ve seen really serious volatility in crypto before. One of the industry’s slogans for that reason is ‘Hold on For Dear Life,’ he said.

“Ultimately, markets are made up of people, people get emotional and that can result in savage bear markets even in the safest investment grade bond markets.

“Crypto is a very young asset class. It’s incredible what has already been achieved in such a short time and it will continue to evolve and get better and better.”

– with Alexis Carey

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