Bitcoin losing almost 10% in a few hours, even falling for a moment below $30,000, altcoins falling without exception like tin cans during a surreal funfair, and the rising star of stablecoins failing to his mission. This is the sad result of a night such as the crypto-monetary market had not known for a long time. And if crypto adventurers are used to being roughed up, even the most seasoned are struggling to fully understand this morning what could have gone so wrong. Hot recap.
Nightmare Night for Bitcoin and Crypto
No drunkenness and merriment without risking the occasional hangover – We will start this article with a very apt tavern proverb as it will be rare those who have some money invested in the wonderful world of Bitcoin and cryptocurrencies to get up this morning without having a pasty tongue and the impression of having passed under a train piloted by a mad, pro-FED, revenge-seeking railroad worker.
Let us judge: Bitcoin loses nearly 10% in 24 hours stalling heavily until spending a few minutes below the iconic $30,000 waterline (and more broadly dropping 30% in 15 days from its April 21 high of almost $43,000).
same for me Ethereum which comes close to $2,200 and plays at being scared. As for the rest of the small people of altcoins, it is downright slaughterhouse, without discrimination.
Harmless meme-corners there on a misunderstanding (shiba inus takes a log hit on the truffle of 16%) to the assets considered the most solid and emblematic of the Top50 marketcap (ATOM and AVAX both lose more than 15%, Solana – who really didn’t need that -, 14%).
In short, in a few hours, it is nearly 200 billion dollars whose total crypto-monetary capitalization has been offloaded. Roughly the GDP of Portugal, sorry.
And then, in this bright red painting, there is this little guy there who plays the horseman of the apocalypse in solo:
the LUNA (TERRA) collapses on his side so brutally that he would almost make the gadins of his little comrades pass for pleasant seasonal variations: -55% in a few hours. A tumble as spectacular as it is paradoxical insofar as it is the direct result of its close connection with an active ingredient designed and appreciated precisely for its…. supposed stability (but that was before): the UST.
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Stable, but not too much
We will not repeat here the presentation of what is the USTsimply because you will find it here.
The UST one stablecoin (cryptocurrency whose value is supposed to never vary, in any case no more than that of its underlying) of a somewhat particular kind because it says ” algorithmic »i.e. not based on a single traditional fiat asset (typically the dollar), but on a basket of cryptographic currencies, themselves linked by an architecture of complex interactions grouped under the name of‘Anchor Protocol.
On paper, the promise is very attractive: a stablecoin that offers the advantages of a fiat currency (and in particular less fluctuations in its price), without the “disadvantages” of traditional fiat money (control by a third party authority in particular).
The problem (and the industrial catastrophe of the night demonstrates it) is that however clever they are, the cogs of algorithmic stablecoins tend to become perfectly moronic as soon as the underlying assets that support them start to weaken. wiggle and get out of their “normal” fluctuation patterns (a fairly common phenomenon in the crypto economy).
However, in recent months, the rise in power of the Luna Foundation Guard (entity that manages the UST stablecoin and therefore ensures its balance) has apparently quite largely made people forget this almost organic problem linked to the deep nature of this type of token.
It must be said that between an impressive fundraising of 1 billion dollars at the start of the year and the purchase of 1.5 billion dollars in bitcoins just a few days ago, everything seemed under control.
But in recent hours, the veneer of seriousness and credibility of the whole building began to crack, then to frankly burst into pieces, as the UST “de-pegged” from the theoretical standard 1 UST = $1, to drop as low as $0.66, a drop of 35% (back to $0.84 at the time of writing). A catastrophic situation for an asset whose value proposition is entirely based on its theoretical invariability.
The Anchor Protocol and LUNA Foundation teams did not sit idly by, obviously trying overnight to salvage what could be, including liquidating – at a loss – significant holdings in bitcoins, yet very recently purchased. It is thus more than 42,000 bitcoins that seem to have been liquidated in an attempt to limit the damage and slow down the vertiginous fall of the UST.
Accounts specializing in the monitoring of large transactions resounded all night with loud alerts, demonstrating that the hour was indeed at the ebb and flow and that behind the scenes large quantities of BTC were changing hands.
At the same time, billions of dollars were leaving the Anchor protocol, clogging up networks (including those of exchanges, some of which ended up limiting or making withdrawals temporarily inaccessible) and often leaving users in anguish in the face of transactions that failed while their assets melted like snow in the sun.
In the early morning, things remain unclear. Were it sudden downward variations in the price of Bitcoin that put the Anchor protocol and the UST in difficulty, to the point of compromising its stable indexing? The reactions of the protocol (mass sales of bitcoins in panic mode, triggering cascades of liquidations and mechanically dragging the entire crypto market into the red) are enough to explain the disaster of the night. Or is the problem deeper, linked to the very mechanics of the TERRA-UST-Anchor Protocol trio? We’ll talk about it soon when the dust settles… and after a few aspirins.
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