This was the most eventful week in many months, but, unfortunately, the end result was that $500 billion were wiped off the total cryptocurrency market capitalization. Terra’s ecosystem was at the forefront of it all, so let’s unpack.
On May 9th, UST – the algorithmic stablecoin of the Terra ecosystem, lost its peg. It fell to about $0.95, but no one was prepared for what happened after that. On the following day, UST continued losing value as the Luna Foundation Guard continued deploying capital in a futile attempt to defend the peg. It all came crashing shortly after – on May 11th, UST was trading at a discount of close to 80%.
This, in turn, created a massive arbitrage opportunity because of the way the algorithm behind the stablecoin works. So long as UST trades below $1, users can burn it for $1 worth of LUNA – means of obtaining the cryptocurrency below market prices in perpetuity until the peg is restored. This created an infinite loop of printing LUNA and diluting existing supply to a point where a few days later – LUNA is essentially worth $0.
Billions were wiped off the market while exchanges have mostly delisted trading pairs associated with both cryptocurrencies. The Luna Foundation Guard had previously bought as much as $1.5 billion in BTC for its reserves – an amount that’s completely depleted now.
This pulled the entire market down. The result – $500 billion was erased from the total capitalization. Bitcoin’s price dropped below $26,000 on some exchanges – levels that we haven’t seen since December 2020.
Many altcoins followed suit, all charting massive declines. Solana dropped below $40, ETH – below $2K, and so forth. At the time of this writing, the market is recovering, but the overall sentiment remains very frightful.
With hopes that the worst is over, it’s exciting to see what the next seven days have in store. Once again – there are no boring days in crypto.
Market Data
Market Cap: $1,373B | 24H Vol: $374B | BTC Dominance: 42.3%
BTC: $30,522 (-16.6%) | ETH: $2,101 (-23.7%) | ADA: $0.57 (-27.7%)
This Week’s Crypto Headlines You Can’t Miss
Here is What Happened to LUNA and Why the Price Can Continue Crashing. UST lost its peg, and LUNA came in crashing. The latter essentially lost 100% of its value as the algorithm’s arbitrage printed it in perpetuity. At the time of this writing, many exchanges also delisted related trading pairs.
Bitcoin Coinbase Premium Dumps to 3 Year Low. The Bitcoin premium on Coinbase dumped to a low not seen in three years. This might be an implication that institutional sellers are disposing of their holdings on the platform.
Germany: No Taxes for Selling BTC and ETH if Held for Over a Year. The German Finance Ministry said that private individuals will not have to pay taxes when they sell BTC or ETH, provided they’ve held them for more than a year. This is a considerable development in a positive direction.
FASB Votes to Review Accounting Rules for Crypto on Balance Sheets: Saylor. The Financial Accounting Standards Board (FASB) has voted to review accounting rules for exchange-traded digital assets in the US. This could have major implications for companies seeking regulatory clarity.
Australia’s Delayed Crypto ETFs to Launch This Week. After a delay of two weeks, Australia’s first cryptocurrency exchange-traded funds started trading. Due to unfavorable market conditions, though, they have so far generated negligible volumes.
Meta’s Instagram Tests NFTs as Facebook Plans to Follow Suit Soon, Says Zuckerburg. Instagram will see the introduction of NFTs in the future. users will be able to view them in a physical space. This was revealed by Meta’s CEO – Mark Zuckerberg.
Charts
This week we have a chart analysis of Ethereum, Ripple, Cardano, Solana, and Shiba Inu – click here for the full price analysis.
