After a pause on Friday, bitcoin, the largest of the world’s more than 11,000 cryptocurrencies, fell below $29,000 today, after a week in which the crypto world was shaken by the collapse of TerraUSD, a supposedly stable rate, of fixed value with respect to the dollar, which dragged the other stablecoins and flooded those who invest in cryptocurrencies with doubts.
TerraUSD became one of the largest of its kind and despite its relatively small size relative to the crypto universe, it fueled doubts about the stability and support of the others, including the largest, Tether, despite the fact that it has a important difference: it is not based on an algorithm, but supposedly backed by dollar reserves or dollar assets equal to its circulation. A kind of crypto “convertibility” that did not prevent it from being investigated by the New York prosecutor in early 2021 Letitia Jameswhich imposed a fine of USD 18.5 million on Tether and Bitfinex, an associated exchange and whose mastermind is Giancarlo Devasinian Italian former plastic surgeon with a picturesque background
In the case of Terra y Luna, a “sister” stablecoin, the flashy character becomes Mike Novogratzanother crypto “wizard” who last January had a large howling wolf tattooed on his left arm, and so there would be no doubt as to what he included a huge luminous circle and a sign with the legend “Luna”, a crypto “sister” of Terra that at that time was trading at 78 dollars.
Luna is the crypto native of the Terra smart contract platform, and once had a market capitalization of USD 30,000 million, until it suddenly lost 99% of its capitalization. Its impact on the crypto market was due to the fact that thousands of investors had been attracted by a 20% annual return that it offered. Anchor (in English, Anchor, the platform of the Terra ecosystem), for which it was necessary to have UST, which were obtained through Moon shopping. That meant that in the last year billions of dollars went to Luna, boosting its price, from the demand for UST to obtain the performance of Anchor.
Novogratz, CEO of Galaxy Digital, an investment fund that aspired to be “the Goldman Sachs of cryptocurrencies”, was still celebrating in April, when Luna hit a peak of USD 116, but fell to practically 0 (zero) when his “sister ”, Terra, did the same and dragged all based on its algorithm.
Terra was recovering today, as reported by the tracker of CoinMarketCap cryptocurrencies, more than 1,200%, a percentage that is impressive but means very little when the price fluctuates between 3 and 4 ten thousandths of a dollar.
The “market capitalization” of cryptocurrencies remains just above $1.2 trillion, almost two trillion dollars below the $3.2 trillion it had reached in November 2021, when bitcoin brushed the $70,000
More important is the mark of the collapse of Terra in the crypto universe, which today was still fighting to maintain a market capitalization above USD 1.2 trillion, that is, two million million dollars less than last November, when the joint capitalization exceeded USD 3.2 billion.
The evolution of bitcoin reflects this phenomenon: after touching USD 70,000 last November, today it is bidding not to move away, downwards, from USD 30,000 and fell, in the last 24 hours, more than 5 percent.
Now everyone is looking at Tether, the “real” backed stablecoin, which this Saturday managed to recover and trade at 99.8 cents on the dollar, almost equal to its theoretical value, after having fallen to 95.1 cents on Friday, far from its supposed parity with the dollar.
To regain credibility, Paolo ArdoinoTether’s chief technologist, vowed to uphold parity “at any cost” and be willing to sell “tons” of the nearly $40 billion in US Treasury bonds that the “stablecoin” amassed as backing, though doubts about the The existence or at least the consistency of that support subsists and was the core of the investigation, the fine and the restrictions that prosecutor James imposed at the beginning of 2021.
The “stable” character of Terra made it one of the favorites of the Argentine caves. In fact, many of the affected cryptos are popular in Argentina as they serve as a means to bypass exchange restrictions.
The recent collapse prompted regulators to once again promise more vigilance. During the week, the US Treasury secretary, Janet Yellen He said the collapse of TerraUSD shows the risks associated with the asset class that “pretend to be pegged to the dollar,” called for new regulations, adding that the Treasury was working on a report on its dangers.
In fact, the The US Congress had demanded a special regulation of “stablecoins” due to their nature as a bridge between cryptocurrencies and their ability to affect the entire system. The Economist was more forceful. According to the prestigious British magazine: “the crypto infrastructure is broken”.
There are three models of stablecoins.
– Those that have collateral in fiduciary currencywhich are backed by dollars in a bank account, such as USDC, for many the safest because it is regulated by US legislation and has the support of Goldman Sachs. In this segment there is also USDT (Tether), which has the most volume and the most used and, as noted before, Bitfinex, the company behind Tether and USDT, was investigated and fined by the New York Attorney General’s Office in 18 .5 million dollars.
– Mixed models, such as DAI, collateralized with debts in dollars in overcollateralized markets against assets that are liquidated: for each DAI there is robust backing, say its creators, in another crypto. And they are within the world of decentralized finance.
– The new algorithmic model of Terra with UST. “It is the model that we could call the riskiest of all, since they are stablecoins that are backed by the same UST protocol token, the Terra Cryptodollar, which is a stablecoin algorithmic. This type of stablecoins are very much at the mercy of arbitrage, which consists of buying an asset at a exchange or platform at one price to immediately sell it at another at a better price. But with the recent crash of the crypto market and LUNA, Terra’s native token, many people decided to exit UST and move on to other assets, including stablecoins alternatives”, they explained to Infobae from Ripio.
Today, Luna and UST are almost liquidated, he said Steven Kelly, a researcher at the Yale Financial Stability Program, because her collapse undermined confidence in her. “It’s 100% Ponzi,” Kelly told Quartz.
not just crypto
The crypto crash, however, is part of the general collapse of stock assets based first on the expectation and then the fact of the increase in interest rates in the US. What happened was the sixth consecutive week of decline in global stocks, the longest series since 2008, in the midst of the subprime mortgage crisis and the bankruptcy of Lehman Brothers bank.
Although both the S&P 500 and Nasdaq rebounded on Friday, on the weekly balance sheet they fell again, approaching a nearly 20% decline from their most recent peak.
Not all companies, however, suffer the same fate and in fact, the trend is the reverse of what happened in the hardest stage of the coronavirus pandemic, when, for example, the then almost unknown Zoom platform became worth more that ExxonMobil, the largest oil company in the US, which today is worth 13 times more than Zoom, while another oil company, Saudi Aramco (Saudi Arabian American Oil Company) displaced Apple from the pedestal of the most valuable company in the world.
Materiality and energy recovered, for the time being, primacy, due to their value tied to the earth. Which is still a paradox; Tether, the reserve-based stablecoin, derives its name from the English “to bind”, and Terra, from the planet Earth, the place from which the wolf Novogratz tattooed on his arm howls at the Moon.