Bitcoin, a leader in the crypto market, has recently been defeated. Stablecoins are responsible for everything.
Last week, bitcoin's price peaked at 52 weeks lower, down to 2 25,402 (2 20,360), a level not seen until December 2020. Digital gold has recovered, but at the time of writing it still sold around 330,000 (£23,990).
Cryptocurrencies and global stock markets have been sold since the beginning of 2022 due to various hurricanes such as inflation, interest rates and war in Ukraine.
However, recent major market changes are something special, directly related to the U.S. dollar crisis. This popular stable coin has collapsed in recent days, losing 95% of its market value since the last weekend.
Let's take a closer look at the stablecoin market to understand how it can lead to the collapse of a popular cryptocurrency market in a few days.
What are the stablecoins?
There are several types of coins in cryptoland. But, as its name suggests, stablecoin is designed to provide a "secure" digital asset that maintains a reliable estimate.
This is how the stable coins work. Its value is tied to the price of other assets, the most common being fiat currencies such as the US dollar. The goal is to keep the coins stable at the same value as their bonds.
When attached to a dollar, a coin should always be valued at one dollar, no matter what happens elsewhere on the market.
Today, stable Tether (USDT) is the third largest cryptocurrency on the market capitalization. Both USDT and its counterpart stablecoin USD Coin (USDC) are attached to U.S. dollars. When you buy $10, you expect to cost tomorrow 1 10 and tomorrow 10 every year from now on.
How does the tears work?
Tearaused is an animal completely different from a rope or coin of the United States dollar. This is an algorithmic "stable coin", supported by the magic of computer code.
Using stable algorithmic coins, the computer program maintains a cryptocurrency database. Once you realize that there is only a backup code for such an OST, you start to see that things can get stuck quickly.
Therefore, let's take a look at the history of the entire US dollar, which fell to 0.23 (0.18), which is much lower than the peg to 1 1 (0.80). Crypto experts say that the mechanism under the US dollar has been flawed since the beginning.
The multilevel system uses a special cryptographic code called Luna, which helps OST keep peg 1-to-1 in the US dollar.
This entire system is completely broken because it relies on one of the speculative properties — Luna-to be secured, said Colin Olds, founder of crypto Bros. Privacy Fund. "The problem is that the moon is created for the purposes of donation only because the Terra ecosystem needs donations.”
Behind this stable coin, in other words, is little stable except for its programming language.
Why does the Terra (the moon) fall?
The month was supposed to protect the dollar from market fluctuations, but in recent days it has been overcome by excessive sales. At the time of writing, the exchange rate for travel was reduced to us 0 0.03 (us 0 0.02). This is 99.9% less than May 6.
The collapse of Terra is inevitable because it relies on the use of other cryptocurrencies as a guarantee, as well as luna minting/mechanical burning for Terra is not enough to survive major market fluctuations, said Adam Carlton, CEO of pinkpanda crypto wallet.
In an attempt to save terraced, The Luna Guard Foundation (LVG), a non-profit organization supporting the Terra network, spent the entire tahiry 3 billion (2 2.4 billion) savings on bitcoins. The dumping of bitcoin stock from the fund with the ultimate intent to save the OST which may have led to an increase in bitcoin volatility.
Will the cryptocurrency market recover?
Although the sun may sink in US dollars, it is not a tragedy and darkness for the future of the crypto market.
Rick Edelman, founder of the Digital Asset Council for Financial Professionals and author of the book "The Truth about Cryptography", said that what happened this week was an epidemic: "during a period of fear people sold randomly. The smart investors soon realized it was funny, and they felt there was a great time to buy.”
Edelman expects a rapid recovery from the price of Bitcoin and Ethereum. In his opinion, too many people bought in the terraced without thinking about how the system works, which makes the current situation almost inevitable.
What is the future of stablecoins?
With the fall of terraced, other coins came under microscopy, especially tether. Remember that USDT is supposed to be supported by assets in US dollars-and at the time of writing, the market capitalization of USDT is 82 billion ($66 billion).
Unbelievers have claimed that the tether management organization does not have 8 82 billion to support its finances.
Last week, the market tried this Tess. The U.S. dollar fell to 0.97, quickly losing its currency to the U.S. dollar. He has recovered from the disease, but his health is now in question.
Cryptocurrency market participants expect some discounts-the US dollar may be less than one dollar, as a safe currency is more risky than a dollar. But it doesn't require a lot of money from the pins to get rid of the market's trust in stable currency.
The market clearly shows us that stablecoins are the future, " said Andrew Pesko, chief investment officer in the finance sector.
Coins such as the United States dollar (USD) have proven durable. The U.S. dollar still sells at 1 1 and rises by by 1.13.
Carlton said: "Despite all the damage caused by Terra Foundation's careless approach to stable coins, we will see that the industry is moving forward and creating more flexibility in the market.”