Inflation, Interest Rates, Regulation and TerraUSD – Why Did All Crypto Drop Today?
In this article, we’ll discuss Inflation, Interest Rates, Regulation and TerraUSD. These three factors are causing the drop in cryptos today. If you haven’t read them yet, I highly recommend reading them. There is an interesting story behind each of them. To understand them better, we’ll first examine the situation in the crypto world. Once we’ve discussed the fundamentals of these factors, we’ll look at TerraUSD.
Bitcoin and other risk assets have seen their prices plummet this week. As interest rates rise, the value of these assets also drops, making them less attractive to investors. Higher interest rates can hurt speculative assets, but they can also help other relatively safe assets like stocks. Crypto is faring better on some metrics, but the same dark horse is stalking them – interest rates. As the Federal Reserve raises rates, it increases the cost of doing business, which in turn hurts corporate earnings.
Investors are trying to gauge how the U.S. economy will perform in the months ahead, as well as what steps the Federal Reserve will take to rein in inflation. Interest rates have become a major catalyst for crypto market movements, and the Fed’s recent move is not a good thing for investors. It has caused billions of dollars in value to be erased from the industry. The latest estimate puts the amount of value destroyed at $200 billion.
A broader concern is the economic outlook. Concerns over inflation and the Federal Reserve have led to a sharp drop in stock prices. Investors are reducing their risk during times of inflation. The recent increase in consumer prices has also weighed on the cryptocurrency market. As a result, a large number of crypto assets are down in value today. If these factors are at play, what are the implications for the price of cryptocurrencies?
As the stock market has mirrored crypto prices in recent weeks, the dip is largely a result of macro-economic factors. Inflation, rising interest rates, and geopolitical tensions have all contributed to this trend. Even though inflation slowed in April, it is still well above the long-term trend of 8.3%, reducing confidence in the future of crypto assets. This can compound the pressure on the crypto market, forcing investors to free up cash.
The recent collapse in crypto prices has many people scratching their heads. The main reason, according to a former finance secretary, is the apparent mismatch between supply and demand. In essence, it’s like a stock market crash that takes months to recover from, but cryptocurrencies are moving much faster. As a result, a rapid recovery could be in the works. Let’s explore the reasons why all crypto dropped today.
One factor is the current regulatory framework around cryptocurrencies. Britain’s new regulations on stablecoins are a major reason for the fall in the price of crypto. In addition, Britain hopes to become a global hub for digital payments. And the European Union’s draft rules for cryptoassets are now on track. The final bill must be negotiated by the legislature before cryptocurrencies are legalized. If these new regulations are approved, they could help develop the crypto space and protect consumers.
You may be wondering why TerraUSD dropped today. The reason is fairly simple. Its sister coin, Luna, has lost its peg to the U.S. dollar. This has led to huge sells that have pushed the price down to under $0.30. While the price has recovered some value, it is still below its $1 target. Traders, spooked by the recent meltdown, have been selling Luna by the fistful to avoid the price volatility. Luna, the sister coin, has dropped by 99% in the past few days.
One reason for the fall of TerraUSD is the suspension of Terra’s blockchain for nine hours. This meant that new blocks were not being generated on the network, making it impossible for Terra asset holders to move them until the chain was unfrozen. The suspension of the Terra blockchain was necessary to prevent governance attacks, significant $LUNA inflation, and a significantly reduced cost of attack. While the halting of the chain was unfortunate, it isn’t the end of the world for Terra. It will be up and running on the Kucoin exchange on Tuesday.
The market has suffered a massive setback today thanks to Solana, which lost more than 11% in just one hour. This is due in part to Solana’s shaky network, which has been plagued by several outages in recent months. The network has lost nearly 18 hours, or nearly half, of its value over the past month. Investors’ confidence in Solana’s network has been shattered, and some traders have already moved their capital to other crypto networks. However, Miles Deutscher, an independent market analyst, believes that the outages will decrease over time, and that other L1 blockchains will continue to eat into its market share.
There are many reasons for Solana’s drop, including the ongoing issues with its blockchain, which forced validators to stop processing new blocks for a period of time. While the outage has caused a rash of cryptocurrency crashes, Solana remains one of the largest cryptos to be affected. The cryptocurrency is experiencing a major setback in its market value after the FED’s recent interference in the money market has sent shockwaves throughout the entire monetary ecosystem.
The Avalanche cryptocurrency dropped today by around 50%. The collapse of the Terra ecosystem is one of the biggest reasons for the crypto market to crash. The high volume of transactions that occurred over the past few months slowed down the Avalanche network and revealed a coding bug. Also, the Pangolin exchange launched on the Avalanche network. The crypto market is currently oversold, and there are no clear indications of whether the currency will rebound.
One of the largest issues for Avalanche is that its native token AVAX was recently inflated. As a result, many investors are holding on to their AVAX coins. Despite the decline, the company is still optimistic due to recent positive developments. Avalanche has over $9 billion in total value locked (TVL), which measures the deposits on smart contracts. However, the company is still behind other competing cryptocurrencies.