If the alarm sounded when bitcoin dropped below $34,000 a few days ago, things got even more dangerous for investors as the currency dropped below $27,000. It has not been at these levels since December 2020 and the forecast is not good either. Nearly all current cryptocurrencies have dropped significantly (for example, bitcoin is 12.5% ​​in the last 24 hours, but Ethereum is almost 21%). Experts say the main factor in this new crash is in some stablecoins that by design need to be held steady. They didn’t.

surprising losses. The depreciation from the highs we saw late last year is staggering: Bitcoin and ethereum are down 60% from the record highs they reached in November 2021, but things are much worse for other cryptos: Cardano, Litecoin, Shiba or Doge losing 85% to 90% of their former value. was between. When it comes to Terra’s currency, LUNA, the loss is 99%.

high below %
ethereum $ETH: -59
bitcoin $BTC: -60%
tron $TRX: -62%
Binance $BNB: -63%
polygon $MATIC: -80%
raw $AVAX: -82%
XRP $XRP: -82%
Solarium $SUN: -84%
litecoin $LTC: -85
cardano $ADA: -85
Polka-dot $DOT: -85
shiba inu $SHIB: -85
doge $DOGE: -90%
black $MONTH: -99

– Charlie Billello (@charliabilello) 11 May 2022

The drop, mind you, isn’t exclusive to cryptocurrencies: A similar message could be sent from the global economy if we take a look at the big tech companies whose stocks have lost so much value since their all-time hit. high a few months ago. They commented on Reddit where someone cited strong examples: Nvidia and Facebook are down 50%, but among the least: Netflix and Shopify by 80%, and of course Robinhood and Coinbase, which are closely linked to cryptos, are still down more than 90% from their historical maximums.

What is stablecoin. These cryptocurrencies have the property of being designed to minimize the price volatility of traditional cryptocurrencies and are associated with a “stable” asset, which can be another stable cryptocurrency or fiat currency (like the dollar or euro).

There is a special type of stablecoin called seigniorage-style stablecoins that are not backed by any other crypto or fiat currency: their value is governed by an algorithm that controls the money supply in that cryptocurrency. It is essentially the same thing a central bank does when printing or destroying its currency.

TerraUSD stablecoin boom. The TerraUSD (UST) cryptocurrency has done something that a stablecoin should not: its price has been pegged to the dollar at a ratio of 1:1 since its inception. The oscillations—as with other stablecoins, that’s why they’re called “stable”—are minimal, but recent economic events—rising interest rates in the US, falling stock prices—have caused a sudden collapse in value, instead being $1 at CoinMarketCap It was $0.29, according to .

Why did this happen? UST was not backed by the dollar, but theoretically maintained its link to that fiat currency through its connection to another cryptocurrency called LUNA, the Terra network token. Everything was going great for LUNA, which hit an all-time high of $116 on April 5th. The collapse of the stock and cryptocurrency markets resulted in a massive sale of these tokens, eventually losing 99% of their value. It is currently worth $0.26.

Inflation doesn’t let up. The new drop has a lot to do with the latest news on the inflation situation in the US. It decreased slightly in April, but is still the highest in the last forty years. The rise of prices for products and services does not stop, and the impact of the Ukrainian War only aggravates the problem.