The Crypto Crash: What you Need To Know
The crypto crash has been one of the most significant and interesting events in recent financial history. If you haven’t heard about the crypto crash don’t worry, you are not alone.
There has been an explosion of interest in cryptocurrencies and digital assets which have led to one of the most significant bull runs in recent history.
This blog post will discuss the crypto crash and what it means for the future of cryptocurrencies.
Why is crypto falling apart?
Cryptocurrency’s price fluctuations may be influenced by interest rates, inflation, and other macroeconomic factors that influence investors’ confidence in riskier alternative assets.
With growing interest rates, savings accounts become more attractive, and some individuals may feel more at ease placing their money in accounts that offer predictable returns.
And when prices fall rapidly, as they have in the spring of 2022, this might exacerbate market pressure by compelling some investors to liquidate assets in order to pay their obligations.
The acts of governments and authorities throughout the world may also contribute to investor pessimism and cause a crypto market meltdown.
As interest in cryptocurrencies has increased, government authorities are considering the implications of this technology for monetary policy, security, and the environment.
Bitcoin Might Not Be the Best Inflation Hedge
In recent months, the crypto market has been moving in tandem with the stock market. In March 2022,1 the correlation between Bitcoin and the S&P 500 reached its highest level in 17 months.
indicating that the cryptocurrency market and the stock market are headed in the same direction.
Bitcoin is frequently viewed as an effective hedge against inflation. This means that inflation has no effect on the leading cryptocurrency. It may not always be true. High inflation and tighter monetary policies impacted crypto investors, leading to the market’s collapse. These examples demonstrate that crypto now has a larger market and is gaining popular acceptance.
Stablecoins are not always stable
Stablecoins are intended to preserve their value. They are supported by fiat currencies such as the U.S. dollar, gold, and other cryptocurrencies. The fall of Bitcoin has a negative impact on Terra and TerraUSD. This is attributable to the operation of Terra.
Terra (LUNA) and TerraUSD (UST) are two Terra network native tokens. Using algorithms, TerraUSD intends to preserve its peg to the US dollar. Therefore, in order to mint UST, one must burn the corresponding quantity of LUNA. It functions the same way in reverse. The protocol maintains the price of UST in this manner.
According to TechCrunch.com, Terra’s inventor, the Luna Foundation Guard (LFG), decided to add Bitcoin to its reserve in March 2022 in order to increase the stability of its stablecoin. The concept was that Bitcoin backing would help steady UST if something goes wrong with prices. Unfortunately, this did not occur, and the stock market, Bitcoin, and the entire cryptocurrency market all plummeted.
According to coingecko.com, Terra (LUNA) is presently trading at $0.000000999967 per token, a decrease of 14.359 percent from its all-time high of $119.18 in April 2022. According to coingecko.com, TerraUSD (UST), which has lost its dollar peg, is presently trading at $0.13.
The massacre expanded to other stablecoins, including the largest stablecoin, Tether (USDT), which lost its dollar peg. At one point on May 12, UST’s price reached a record low of $0.6841. This means that USDT holders possess tokens worth less than $1. According to coingecko.com, the cryptocurrency is currently back on track, trading at $1.
Conclusion
If you’re investing solely in cryptocurrency, you’re taking on a lot of risk. Cryptocurrency is a very volatile asset, and prices can swing wildly up and down. If you’re not diversified, you could end up losing a lot of money if the market takes a turn for the worse.