“The crypto market already has its own Lehman Brothers,” Finance professor at the University of Seville, in Spain, told Mundo Ismael Santiago.
The cryptocurrency market, including Bitcoin, has had the worst week as the value of most of them has fallen significantly and highlighted the volatility and the risk of losing millions of dollars.
One of these has been the Terra (Luna) cryptocurrency that has collapsed, losing more than 99% percent of its value. Terra, which was among the top 10 most valuable cryptocurrencies, fell below $1 on Wednesday, after having reached a high of $120 last month.
This cryptocurrency, from the Terra ecosystem, belongs to the group of so-called “stablecoins“or stable coins and its main characteristic is that it promises a 1:1 parity with the dollar, that is, one Terra is equivalent to $1.
However Luna collapsed as Terra lost its peg to the dollar due to concerns about the Federal Reserve’s impending interest rate hike.
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The crash meant its market capitalization fell from over $40 billion to just $500 million, resulting in unprecedented losses for investors in one of the leading cryptocurrencies.
Binance, the leading cryptocurrency exchange, temporarily suspended withdrawals on Luna on Wednesday, and on Thursday night, the Terra blockchain was officially halted.
The suspension of Luna’s withdrawals on Binance has been classified as a “digital playpen” in which cash withdrawals are prohibited to avoid a run.
“The crypto market already has its own Lehman Brothers”Ismael Santiago, professor of Finance at the University of Seville, in Spain, told BBC Mundo, referring to the beginning of the great economic crisis of 2008-2009, also known as the “toxic mortgage crisis.”
The fall of the Moon and the stablecoin Terra questioned the reliability of so-called “stablecoins”, whose value is – at least theoretically – directly related to the dollar.
In this category, the stablecoin more popular, Tetheralso lost its peg to the US currency.
That is why James speaks of a chain effect within the world of cryptocurrencies, since the debacle of one precipitates the fall of the rest.
After the fall of Luna, large investors ran to protect themselves in safer assets, while cryptocurrencies lost their value and on social networks, users began to speak of a “cryptocrash”.
Some of those affected by the Luna crash expressed their frustration on forums such as Redittclaiming that the currency “was a scam” or that they had lost the savings they were putting together to buy a house.