Why is Crypto Dropping Right Now?
While equities were hit hard by the stock market crash in 1987, crypto has recovered more quickly. Noble compares the drop in the cryptocurrency market to that same period in 1987, when stocks fell nearly 30%. It took months for equities to recover, but now the market moves much faster than equities did back in the 1980s. Hence, it is likely that crypto will recover even faster. But what is causing the drop in crypto?
Terra’s algorithmic stablecoin
As we all know, the UST has collapsed. This has spooked many investors and caused them to start pulling out of cryptocurrencies. This has triggered the creation of asset-backed stablecoins, which hold real financial assets, such as Treasury bills. As such, the collapse of the UST will likely lead to regulation in the future. As we can see, the instability of Terra’s native stablecoin puts the entire ecosystem at risk. As the only native stable asset for Terra, its instability will impact all other facets of the Terra ecosystem.
The collapse of the Terra ecosystem revealed several centralized pressure points. One of those pressure points was Do Kwon, who used his position to defend the coin. This spooked the entire market. The Terra coin, in turn, has dropped dramatically. But there is a silver lining to this dark day. Investors will likely be forced to make a tough decision about whether to invest in Terra again.
China’s crackdown on crypto mining
China’s crackdown on cryptocurrency mining is the latest worry for investors in the industry. Earlier this month, Bitcoin hit a new price record after Tesla invested $1.5 billion in it and other companies began investing in Bitcoin funds. Since then, the price of the digital currency has plummeted. CEO Elon Musk is deemed the villain of the piece for this massive fall in crypto prices. Moreover, the SEC chairman has sounded the alarm about gaps in regulation for the industry.
According to Bloomberg, the crackdown on cryptocurrency mining is not limited to bitcoin. It has also targeted crypto-related services, including stablecoins like Tether. The country is worried about the threat to its financial stability and the potential adoption of global stablecoins. Some experts say that the crackdown on cryptocurrencies could actually be a positive for the US in the long run.
Recent volatility in the cryptocurrency market has followed the pattern of the stock market, which has seen its prices slump as investors are worried about the Fed raising rates seven times this year to combat surging inflation. Bitcoin and Ether have followed a similar pattern. These markets are also impacted by similar factors as the stock market, including concerns about tighter monetary policy and rising inflation. With this backdrop, some traders are losing faith in the future of crypto.
Traders can profit from daily price fluctuations by buying and selling at the right time. Historically, the bitcoin price increased by 125% in 2016, and more than 2,000% in 2017. However, the price fell sharply after reaching its high point in the latter part of 2017.
Terra’s position in the market
Considering the market volatility that is the hallmark of digital currency, Terra’s position in the crypto market is an intriguing one. It has shown potential to outperform major coins and has huge scope for growth. Market analysts are impressed with Terra’s condition in the stablecoin space. However, the UST crash has cast a cloud over the crypto ecosystem as a whole. The UST crash could cause mistrust among investors, slowing down venture investing.
Despite the crash in the price of bitcoin, cryptocurrencies like Terra are still growing in popularity. In addition to being the fastest growing cryptocurrency, Terra has a pile of $3.5 billion in bitcoin. While Bitcoin’s price has been in freefall, Terra has a hefty amount of cash sitting in its bank. Terra’s growth rate is at a high point, but the project is not achieving the goals that it had hoped for.