After the stunning events of last week, the crystal currency market is rebalancing and analyzing the causes of the crushing collapse.
Supported by the owners of Bitcoin, the market of the main cryptocurrency is currently holding the price above the psychological level on May 17.
Last week, along with the pressure of macroeconomic factors, the volatility of the Bitcoin market was intensified by turbulence and chaos created by two stablecoins, UST and USDT. Since stablecoins have been the main link between the digital world and real capital in the last two years, this has created additional downward pressure on the value of Bitcoin.
According to market researchers Glassnode, the two largest interdependent cryptocurrency assets by market capitalization, LUNA and TerraUSD (UST), lost 40 billion in investment value within a few days.
TerraUSD (UST) stablecoin was a very promising project and was in the top ten by market capitalization. In decentralized finance (DeFi), it was second only to Ethereum (ETH) in popularity.
Thanks to the algorithmic design, UST and LUNA were mutually convertible, but each UST token could only be exchanged for one LUNA token, worth $1. Thus, the requirement of linking the UST stablecoin to the dollar in a ratio of 1:1 was ensured, which was supported by the Luna Foundation Guard (LFG) reserves. When the demand for UST increased, the supply of LUNA decreased and vice versa, when the demand fell, and with it the prices, the supply of LUNA increased.
Last week, the algorithmic UST stablecoin almost lost the required 1:1 dollar peg, and the LUNA balancer coin depreciated to the level of "0.00001 dollars due to hyperinflation of supply." Sales of LFG reserves in the amount of 80 thousand BTC did not save the situation and many exchanges excluded them from their listing.
At the same time, during the market turbulence, the largest stablecoin Tether (USDT), backed by various assets, including risky ones, also briefly collapsed to the level of $ 0.965. Thanks to the measures taken by the creators of USDT aimed at restoring collateral reserves, the Tether stablecoin (USDT) is trading at $0.999 today.
Given the scale of the impact on the cryptocurrency market and the risk to the traditional financial system due to the conversion of a stable coin into a fiat currency, the issue of adopting a law on the regulation of stable coins has been raised again in the US Senate Banking Committee.
As reported by Newsis, the top financial regulators of South Korea were also concerned that the fall of UST and LUNA caused damage to more than 200 thousand investors in South Korea and Singapore. According to the Commissioner of the Financial Supervision Service, Jong Eun-bo: "There are concerns that confidence in the virtual asset market will decrease and users will be harmed." In this regard, the issue of creating a global system for regulating virtual assets should be considered.