The cryptocurrency market has wiped out billions in value after an epic failure and now accusations are flying that something sinister has happened.
People have had their savings wiped out by the cryptocurrency carnage and homes are under threat as a dazzling $200 billion ($291 billion) was slashed from the crypto market in just 24 hours.
The chaos in the cryptocurrency world was the result of a massive sell-off as fearful investors rushed to discharge their assets – but no one knows what caused the crash of two of the industry’s biggest players.
Bitcoin has fallen from a high of $69,000 to below $25,500 this week, but it wasn’t the world’s best-known crypto that sent huge shockwaves across the industry.
Instead, it was the crash of the terra (UST) and its sister token luna.
Terra is known as a “stablecoin” – cryptocurrencies that are “linked” against the US dollar or other traditional assets, which in theory protected them from market carnage.
This means that an investor should be able to sell a token at any time and get $US1 in return.
The idea behind that arrangement is that if terra falls below $1, it can be traded for luna, which was supposed to ensure stability — but this week both crashed at the same time, with luna collapsing by a devastating 98 percent.
Terra, which was one of the world’s most valuable stablecoins, saw its value plummet below $0.20.
The extreme sell-off was the equivalent of panicked people running to the banks and taking all their money out of it.
Luna’s crash at the same time as terra has been described by experts as a “death spiral” as it went from around $86 early this week before falling to a mind-boggling $0.003 on Friday.
Luna’s essential collapse, which saw its market value soar from $40 billion to about $500 million, had a knock-on effect on the broader cryptocurrency market, with bitcoin price dropping to its lowest level since December 2020 and ethereum falling as well. by 16 percent.
Social media has gone into overdrive – pointing the finger at major US hedge funds and trading firms for causing the collapse as a result of the billions involved in trades going down.
Some of the leading US investment firms, including BlackRock and Citadel Securities, have been quick to deny any involvement.
Still, Lisa Wade, the CEO of blockchain company DigitalX, said that while it was too early to say whether the momentum for the crash was created by collusion, it appeared “exploitative”.
“Conspiracy theorists would say ‘yes’ because it’s a huge business. I mean, in my entire career it’s one of the biggest transactions I’ve seen,” she told the… ABC†
“It’s almost an evil genius plot, because it takes a lot of steps.”
She described the plot as complex – it involved purchasing $1 billion worth of terra, betting on the price of bitcoin falling in a move called “shorting”, and also looking at its timing when fewer eyes are on it. were the market.
Their target was Saturday night, just like when trading volumes were low, she explained.
In basic terms, it saw terra sold in huge volumes, which then sparked a frenzy of more sell-offs that broke the stablecoin system and rolled into other cryptos as well, unloading bitcoin as well.
“Luna was affected because it was the underlying [backer] of the US. So every time a UST [token] has been bought, a luna [token] has been burned, meaning there are fewer tokens in supply, so the price of the luna is going up,” she said.
But the reverse applies when people start selling and essentially a huge amount of luna floods the market, driving the price down, she added.
“And if there are no buyers and the price goes down, then it starts feeding itself because people panic and start selling Luna,” she said.
“This was an exploitative trade that took advantage of the markets being weaker. The perfect storm was when no one stood up to buy the bitcoin and the UST.
The human consequences
Heartbreaking stories have been shared on the TerraLuna Reddit page with moderators pinning a list of suicide prevention hotlines from around the world at the top of the page.
“I lost over 450k usd, I can’t pay the bank. I will soon lose my house. I’m going to be homeless,” one person wrote on the forum.
Another said they lost all their savings after buying Luna for $85, while others said they lost $50,000 in one night.
“I should have cashed out when it was $100, then I would have made $25,000,” said one user.
“But I became greedy in hopes of getting more money so that I can at least make a down payment on a house for my family. Then I think no house and savings.”
The creator of Terra and Luna, South Korean Do Kwon, described the crash as an “attack”.
“I’ve spent the past few days on the phone with members of the terra community – builders, community members, workers, friends and family, who have been devastated by UST depegging,” he tweeted on Saturday.
“I am heartbroken at the pain my invention has caused you all.”
Ms Wade added that it was troubling that mom-and-dad investors who had used their savings to back the stablecoins that offered 20 percent returns were caught up in the slump.
“So a lot of innocent people had been saving their money assuming they were getting risk-free deposits,” she said.
Terra’s recovery seems unlikely as lenders find little momentum to raise $1.5 billion dollars to increase its value and restore it to parity with the US dollar.
Mr. Kwon seemed to suggest on Saturday that it was game over for the way the stablecoin worked.
“I still believe that decentralized economies make decentralized money, but it is clear that $UST in its current form will not be that money,” he tweeted.
“Neither I nor the institutions I am affiliated with have benefited in any way from this incident. I did not sell luna or UST during the crisis.”
He added that there were “multiple proposals” for the next best steps.
“What we need to look at now to preserve is the community and developers that make terra’s block space valuable – I’m sure our community will reach consensus on the best way forward for itself, and find a way to get back on track.” standing,” he said.
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