Bitcoin, the world’s largest cryptocurrency, has fallen more than 50% since hitting an all-time high of nearly $69,000 in November.
Dan Kitwood | fake images
The two main tokens of the embattled Terra crypto project are now in free fall.
UST, a purported stablecoin that is meant to hold a $1 peg, plunged more than 60% on Wednesday from the previous 24 hours. It was trading for just 35 cents at 4 a.m. ET, according to data from CoinGecko.
Sister token luna plunged more than 80% to $5.
Stablecoins are similar to bank accounts for the crypto economy in that they offer a strong store of value to prevent the kind of volatility that cryptocurrencies like bitcoin have become notorious for, at least in theory.
UST, the third largest stablecoin in the world, uses a complex system of minting and burning tokens to adjust supply and stabilize prices. Its price has collapsed under the pressure of a cryptocurrency sell-off recently, leading to further market panic.
Do Kwon, the coin’s creator, has accumulated billions of dollars in bitcoins through his Luna Foundation Guard fund to support the UST in times of crisis. The fear now is that the Luna Foundation Guard will dump those bitcoins into the market, resulting in an even bigger sell-off.
Bitcoin briefly dipped below $30,000 on Tuesday, its lowest level since July 2021. The world’s largest digital currency is now slightly above that level. It has fallen 56% since reaching an all-time high of almost $69,000 in November.
David Moreno Darocas, a research analyst at CryptoCompare, said the situation highlights the “fragility” of algorithmic stablecoins like UST.
“UST has become an integral and controversial piece of the crypto ecosystem,” he said.
The phenomenon is still relatively new. But UST has grown to become a major player in the crypto economy, with a circulating supply of nearly 17 billion tokens.
Investors are now closely watching how the Luna Foundation Guard responds to prop up its ailing stablecoin. Kwon said Tuesday that he was “close to announcing a recovery plan” for UST. “Hold on tight,” he tweeted.