What happened to luna? Why is that a big deal?Īs the price of UST crashed, large luna holders cashed out, causing the supply of luna tokens to jump, and its price to crash. Luna started trading in May 2019 at roughly $3 and touched an all-time high of around $116 in April, according to CoinGecko data, at a time when most other large-cap cryptocurrencies were falling.Įarlier this week, UST broke the peg against the dollar and, for the first time, the value of 1 UST fell to less than a dollar - it crashed to less than 30 cents. If the value plunges below a dollar then the coin could be “burned” and exchanged for a dollar’s worth of luna. dollar, which means that at all times the value of one UST should be $1. The value of the UST token is pegged to the U.S. Stablecoins, including terraUSD and luna, were touted as a class of crypto asset that, as the name suggests, offered more stability during market volatility. Luna acts as a collateral currency to UST. These are two cryptocurrencies created by the Terra network, a blockchain project developed in South Korea. TerraUSD: What’s really caught the eye of crypto watchers now is terraUSD, known by its list name as UST, and its effect on its sister token, luna. Bitcoin is the world’s largest trading cryptocurrency and accounts for more than 40% of the market. The price of bitcoin dropped below $30,000 earlier this week, for the first time since July. Meanwhile, the market cap of the cryptocurrency market has more than halved from its peak of around $3 trillion in November to $1.3 trillion now, according to data gathered by CoinGecko, which analyzes the digital currency market. The Standard & Poor’s 500 and Nasdaq stock indexes have fallen more than 20% since the beginning of the year. The Fed is also in the process of reducing the money supply to further curb inflation creep and is expected to continue to hike rates in the future.Īll this makes investors nervous. For damage control, earlier this month the Fed raised interest rates by half a percentage point, the largest increase in about two decades. Rising prices mean economic pain for people - as our incomes aren’t, for the most part, rising in tandem with prices - and they threaten economic growth more broadly. Abundant liquidity also drove prices up across most asset classes, including traditional stock markets and cryptocurrency markets, as traders invested their money anticipating stronger returns. The result down the line was inflation rising to the highest level in four decades. In early 2020, the Fed cut interest rates, or the cost of borrowing, to manage the pandemic-driven economic slump, essentially pumping more money into households and businesses. Macroeconomics: To explain the first factor, let’s start with some macroeconomics. Federal Reserve to combat high inflation and stabilize markets, and the implosion of terraUSD, a type of so-called stablecoin. Market experts say two main factors are driving the recent slump in the cryptocurrency market: moves by the U.S. Why are bitcoin and other cryptocurrencies crashing?
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