In early April, enthusiastic enthusiasts and blockchain superstars gathered at the Bitcoin Conference in Miami to party, celebrate their successes and shout down the crypto skeptics . Today, forums for crypto investors post suicide hotline numbers . How did we get here?
As they become more popular, cryptocurrencies behave more and more like traditional stocks by following the trends of the American financial markets . However, with the stock market in bad shape, mainstream cryptos like bitcoin and ethereum followed the Nasdaq in its fall.
Only, despite their democratization, these digital currencies have retained their very volatile aspect and remain subject to sudden drops. Thus, the value of bitcoin has fallen below its level of July 2021, its last big crisis to date , and could continue to fall.
The problem is that bitcoin is by far the biggest player in cryptocurrency, and therefore drags down both other currencies and satellite companies. Coinbase , the largest crypto exchange platform, has completely stalled. In a few hours, its CEO saw his fortune increase from 13.7 to 2.2 billion dollars (from 13.2 billion euros to 2.1 billion euros).
Most crypto-billionaires have gone through the same treatment . Investor Michael Novogratz thus lost three quarters of his 8.5 billion dollars (8.2 billion euros). But the most impressive meltdown is undoubtedly that of the wallet of Changpeng Zhao, the CEO of Binance , which fell from 96 to 11.6 billion dollars (from 92.2 to 11.1 billion euros). That’s a drop of about 88%. If these figureheads of cryptos still have a few billion to mop up their tears, the situation is sometimes dramatic for more modest investors.
To make matters worse, the situation is such that even “stablecoins”, cryptos specially designed not to be subject to sudden market fluctuations, are unscrewing. This is the case of Terra (UST), a very popular crypto, supposed to follow the movements of the dollar .
Terra is backed by a sister currency, Luna, which fluctuates according to supply and demand. The principle is that when the UST deviates from the value of the dollar, it can still be exchanged for the equivalent of 1 dollar of Luna. Thus, if the UST is worth 99 cents, it is possible to exchange it for 1 dollar in Luna and make an immediate profit. The demand for UST therefore increases mechanically, and it returns to 1 dollar. This is called arbitration.
Only, a panic on the platform where Luna is exchanged caused the currency to fall by 96%. Thus, the arbitration began to slip, and the UST, a supposedly stable value, also fell significantly , reaching 60 cents on Wednesday May 11.
However, Terra Luna relies on a huge reserve of bitcoins amassed by its developers in the event of a crisis. The problem is that if some of these bitcoins are used and hit the market, they could help drive the currency even deeper than it currently does.