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Cryptos crash as stablecoin Terra loses its dollar peg

MUMBAI: The global selloff in most markets has affected cryptocurrency trades as well. Given the risks associated with this relatively new asset class, the impact is in several cases more pronounced than in the established markets. On Thursday, Bitcoin, the oldest and the most popular cryptocurrency, lost over 11% of its value, while Ether, the second-most popular one, lost nearly 20%. Losses in all the popular crypto currencies were in double-digits, with the highest being in Terra Luna, a stablecoin, that has lost nearly all its value while its sister coin Terra lost about 26%.
This dramatic drop in cryptocurrencies in the last two days is being attributed to the near-total collapse of Terra, the stablecoin that was pegged to the US dollar but the people responsible to maintain the peg failed to do so. Stabelcoins are cryptocurrencies that are pegged to a fiat currency at a pre-fixed ratio. It’s the responsibility of the introducers of a stablecoin to maintain the peg at all times.
In the case of Terra and Terra Luna, Do Kwon, the creator for both, failed to maintain the US dollar peg, which led to a rush of investors out of the crypto market globally, market players said. The impact of the slide showed in the IC15, the homegrown crypto index of 15 most traded coins globally, which was down nearly 16% in the last 24 hours.
Crypto exchange WazirX co-founder & CEO Nischal Shetty, however, said that the crash in the crypto space could be “primarily attributed to developments in the macro-environment such as increasing inflation, raising of interest rates by the US Federal Reserve and the Russia-Ukraine war.”
Shetty said that it was interesting to note that the crypto markets were mirroring the traditional financial markets as both were seeing a correction. “It indicates that the crypto markets are attaining maturity — just like other markets, crypto also has a bear and bull run and, at present, we are going through a bearish phase.”




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