Why did Luna crash?
Luna crashed due to its link to terraUSD (UST), a stablecoin which was pegged to the US dollar.
Stablecoins are cryptocurrencies linked to traditional ones.
UST decoupled from the dollar earlier this week, which sent its price tumbling through the floor.
Luna’s market cap has fallen from $40bn (£32.9bn) to little over $200m (£164m).
Leading crypto exchange Binance temporarily suspended withdrawals on Luna on Wednesday.
The coin’s collapse comes amid a general downturn for cryptocurrency, with many coins losing a quarter of their value in the past 24 hours.
Investors appear to be moving away from cryptocurrency and towards less risky investments in the face of global inflation.
Shares in Coinbase, the largest crypto exchange in the US, dropped 15.6 per cent overnight on Tuesday after it posted net losses of $430m (£348m), far worse than analysts were expecting.
Coinbase cited a “trend of both lower crypto asset prices and volatility that began in late 2021”, but was quick to point out that it does not expect these conditions to be “permanent”.
The news has raised questions about whether the market has reached an expected cooling-off period – previously dubbed a “crypto winter” – or a more permanent chill, perhaps a “crypto ice age”.
Simon Peters, crypto market analyst at trading platform eToro, said: “The concern now for cryptoasset investors is when the slide will end.
“The market is caught in the wider adversity of investment markets that are battling to decide where confortable levels are in the wake of interest rate hikes designed to quell soaring inflation around the Western world.”
Will Luna recover?
The coin has the potential to recover, but at present things are extremely uncertain.
Do Kwon, founder of Terra creator Terraform Labs, tweeted on Tuesday: “Close to announcing a recovery plan for $UST. Hang tight.”
He added on Wednesday: “I understand the last 72 hours have been extremely tough on all of you – know that I am resolved to work with every one of you to weather this crisis, and we will build our way out of this.
“The Terra ecosystem is one of the most vibrant in the crypto industry, with hundreds of passionate teams building category defining applications within… Terra’s return to form will be a sight to behold.”
Investing advice site Investing Cube has speculated there is a “good chance” the cryptocurrency could recover.
Analyst Kelvin Maina wrote: “For Luna to recover, they will need to address the problem and show clearly that such a drop will not happen again. As an analyst, I expect to see a bump in Luna prices after UST is pegged back to the dollar. I also expect the prices to start recovering after the Terra project shows that similar problems will not happen in the future.”
Members of Luna’s devoted subreddit have been lamenting their losses on Reddit. A subreddit is a subsidiary thread or category within the Reddit website.
“I lost over $450,000, I cannot pay the bank,” one wrote, while others have mentioned potentially losing their homes.
How risky is cryptocurrency?
People invest at their own risk and cryptocurrencies are not regulated by British financial authorities.
All crypto investments are risky, but meme coins like Shiba Inu are particularly volatile, and you should be prepared to lose everything you invest.
The Financial Conduct Authority (FCA) warned in January: “Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money.
“If consumers invest in these types of product, they should be prepared to lose all their money.”
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown previously explained the risks to i.
She said: “On top of being extremely volatile, most cryptocurrencies are unregulated, which not only adds another layer of uncertainty but also means that investors have little or no protection against fraud.”
This news officially published on: https://inews.co.uk