The state of the crypto market, a few days after the crash

Crypto-currencies are currently under existential pressure. Foto: Markus Winkler / pexels.com

(Alexandre Binder) – During the COVID crisis, the price of crypto-currencies have been skyrocketing and some cryptos saw their market capitalization increase by 5 or even 10 times. As of January 3, 2020, the value of the bitcoin was just over €6,000 and on April 16, 2021, €51,000. The crisis was also beneficial for Ethereum, another crypto-currency. On January 3, 2020, the price was €120, then reached €4,058  on November 12, 2021.

The crash began on May 9. – Since the COVID crisis, many companies have taken the plunge on the creation of crypto-currencies and NFT, some have seen their currency increase in value exponentially. For example, the Luna (created by the company Terra), on December 30, 2020 was worth 0.546€, 1 year later, the currency was worth 74.57€, an increase of 13,557.51%. The Luna, a crypto-currency created to be a pillar of digital finance, aimed to create the foundations for the so-called “stable coin”. What is a “stable coin”? It’s a crypto currency that does not fluctuate, for example the USDT, until May 9, was a stable coin. Terra is also the creator of the “USDT”, a coin that was intended to stabilize decentralized finance . The goal was that 1 USDT would always be worth $1, then Terra wanted to create a stable coin for almost all fiat currencies, such as the Euro, Japanese Yen, Korean Won, British Pound, etc. The problem is that on May 9, the whole market realized that a crash was underway and that it was due to the sudden loss of confidence in the USDT, the entire Terra ecosystem was shaken and the Luna went from 81.87€ on May 4 to 30.38€ on May 9 and 0.0002026€ on May 15, a 100% drop in less than a month. Quickly other cryptos followed, bitcoin lost €10,000, from €38,000, to €28,000 in a few weeks and Ether went from €2,793, to €1,850 today.

What does this mean for the entire market? – One of the biggest exchange platforms, “Coinbase cloud”, announced to stop supporting the Terra Luna ecosystem, which means stopping the Luna from working. Coinbase cloud even announced that it would help its customers and anyone else who wants to find the best way to abandon Terra. The creator of the blockchain, the Korean Do Kwon, is trying to save his creation. He announced to create other projects to save what is left of Luna, however no exchange platform has announced to support him. If Terra Luna closes, it would be the first time in the history of digital finance that a huge blockchain disappears, an unthinkable event, it is as if the Euro disappeared from circulation overnight. If such an event was to happen, it would be a major blow to the entire market, as bad as the internet crisis in the 2000s. It is therefore vital for all players in the market to distance themselves from TerraForm Labs.

Did TerraForm Labs really suffer a blow, or did it play with fire too much? – The Supreme Court of South Korea published a report showing that a few days before the Luna crash, Do Kwon dissolved TerraForm Labs Korea. The CEO replied that this was a coincidence and that he always wanted to close the Korean part of Terra, to favor the activity in Shanghai. “We should bring crypto exchange officials to the National Assembly to hold a hearing on the cause of the situation and investor protection measures. Including Terra’s CEO Do Kwon, who recently became a problem”, says Yun Chang-Hyun, a representative of South Korea’s ruling party and a unit specializing in financial crimes, was referred to investigate the collapse of Luna.

It is still too early to say whether TerraForm Labs is responsible for this crash or not, however, it raises the question if digital finance is not a gigantic speculative bubble and if it bursts, how far this will go.