Since November 2021, Bitcoin’s value has decreased by more than half, leading to the collapse of the cryptocurrency market. Investors could be alarmed by the sharp drops in Terra (LUNA) and TerraUSD (UST). Who would have imagined that both cryptocurrencies would see such a sharp decline while they were enjoying their honeymoon periods one month ago? Investors withdrew their funds due to the negative attitude that swept across the cryptocurrency market, which led to Tether (USDT) losing its peg to the dollar. The week dispelled numerous misconceptions about the bitcoin industry and taught individuals to invest cautiously.
Key Instruction about Cryptocurrency Market
The cryptocurrency markets are in disarray after losing $600 billion in one week.
For the first time since July 2021, Bitcoin fell below $30,000, which is less than half of its November 2021 high.
Currently trading for less than $1, TerraUSD and Terra have suffered the most.
The Best Hedge Against Inflation May Not Be Bitcoin
For the last several months, the cryptocurrency market has been advancing in lockstep with the stock market. In March 2022, the correlation between the price of Bitcoin and the S&P 500 reached a high of 17 months, showing that both the stock market and cryptocurrency markets are heading in the same direction.
A popular hedge against inflation is bitcoin. Inflation, thus, has no impact on the leading cryptocurrency. According to what the market saw this past week, it may not always be the case. Investors in cryptocurrencies were impacted by high inflation and a stricter monetary policy, which caused the market to crash. These occurrences demonstrate that the cryptocurrency market is expanding and gaining popularity.
Not All Stablecoins Are Stable
The value of stablecoins is intended to remain stable. In addition to other cryptocurrencies, they are backed by fiat money, such as the US dollar, gold, and others. The Bitcoin meltdown severely impacted Terra and TerraUSD. It is due to the way Terra operates.
Two native tokens of the Terra network are Terra (LUNA) and TerraUSD (UST). By employing algorithms, TerraUSD seeks to keep its peg to the US dollar. Therefore, one must burn the same number of LUNA in dollars to produce UST. The other direction has the same effect. The protocol works in this way to keep the price of UST stable.
The Luna Foundation Guard (LFG), who created Terra, planned to add Bitcoin to its reserve in March 2022 to give its stablecoin greater cushion, according to TechCrunch.com. The concept was that UST would be stabilized by Bitcoin backing if anything went wrong with the pricing. Sadly, it didn’t happen, and as a result, the stock market, Bitcoin, and ultimately the whole crypto market crashed.
According to coingecko.com, Terra (LUNA) is presently trading at $0.000000999967 per token, a 14.359% decrease from its all-time high of $119.18 in April 2022. According to coingecko.com, TerraUSD (UST), which no longer has a dollar peg, is presently trading at $0.13.
The carnage extended to the other stablecoins, including the biggest stablecoin, Tether (USDT), which lost its link to the dollar. UST’s price dropped to an all-time low of $0.6841 on May 12 at one point. Therefore, the tokens owned by USDT holders are worth less than $1. According to coingecko.com, the cryptocurrency is back on track and trading at $1.
What Will Happen to Bitcoin in 2023?
The most well-known cryptocurrency with the greatest market value, bitcoin, has seen substantial bear markets and drops.
On November 30, 2013, the price of bitcoin increased to almost $1,160. After that, it saw a major price decline that lasted for more than a year, and by January 2015, 1 BTC was trading for $150. The price of BTC surpassed the previous high set in 2013 in 2017, and the same year it also reached a new top at over $19,600. The price of Bitcoin has already fallen to as low as $3,100 by December 2018.
The price burst above the barrier created in 2017 in December 2020, creating new highs until it hit $68,000 in November 2021. Since then, the market has seen huge declines, which a considerably more pessimistic mood has accompanied as a result of individuals becoming more invested in the cryptocurrency market.
The present scenario is just a matter of history repeating itself, according to the price history of Bitcoin, and we anticipate a recovery in the price starting in 2023.
conclusion
This week’s crypto meltdown provided a wealth of lessons. Even the most popular alternative currencies, like Terra, may experience sudden losses and struggle to survive. Decentralized algorithm stablecoins like TerraUSD have an intriguing premise, but they need a more effective approach. In times of crisis, centralized stablecoins like Tether (USDT), often accused of having inadequate currency reserves, seem powerless. This week will be remembered as a turning point in the history of the cryptocurrency sector and a reminder to fans that more work still needs to be done.
FAQs
What Is a Cryptocurrency?
A cryptocurrency is a kind of digital or virtual money that uses encryption to protect against counterfeiting or duplicate spending. Blockchain technology, a distributed ledger maintained by a dispersed network of computers, is the foundation of many cryptocurrency-decentralized networks. The fact that cryptocurrencies are often not issued by any central authority makes them potentially impervious to intervention from or manipulation by governments.
What exactly is a stock market?
The term “stock market” often refers to a group of exchanges and other locations where shares of publicly traded businesses may be purchased, sold, or issued. Such financial operations are carried out via established official exchanges (physical or electronic) or over-the-counter (OTC) markets that function by predetermined rules.
Stablecoins: What are they?
Cryptocurrencies known as stablecoins have value anchored to another coin, good, or financial instrument. The extreme volatility of the most widely used cryptocurrencies, such as Bitcoin (BTC), has rendered such assets less suited for widespread usage in transactions. Stablecoins attempt to provide a solution to this situation.
Will cryptocurrency rebound if it crashes, and why?
The present scenario is just a matter of history repeating itself, according to the price history of Bitcoin, and we anticipate a recovery in the price starting in 2023.
