Cryptocurrencies: luna’s death spiral

A vicious crash has shaken confidence in the entire crypto ecosystem

An electronic board at a cryptocurrency exchange in Seoul
An exchange in Seoul shows cryptocurrency diving during trading on 13 May
(Image credit: Yonhap/Newcom/Alamy Live News)

In January, Mike Novogratz – a former “hedge fund rockstar turned crypto heavy-hitter” – tweeted a picture of a sizeable new tattoo on his left shoulder, said the FT. In homage to his favourite cryptocurrency, luna, it featured an image of a wolf howling at the Moon. “I’m officially a Lunatic!!!” he added. Back then, luna was trading at around $78; by the start of April, it had hit $116. But last week its value slid to “zero” after terraUSD – a sister “stablecoin” that was supposedly pegged to the US dollar – collapsed in value. In all, some $41bn was wiped out, said The Guardian, marking “the largest destruction of wealth” in crypto’s history, according to the analytics firm CryptoCompare.

The shock had a seismic effect across the sector, knocking 15-25% off the value of rival currencies and whacking the already fragile share price of the market’s main exchange, Coinbase. Stablecoins were hit particularly hard, causing the largest, tether, to break its one-to-one link with the dollar on consecutive days. That caused near “panic”, said Simon Freeman in The Times. Unlike more speculative crypto tokens, stablecoins – as the name suggests – are supposed “to bring a measure of stability” to volatile crypto markets, because they’re underpinned by realworld assets. TerraUSD was designed by the Korean entrepreneur Do Kwon, using a complex “algorithmic” arrangement in which its dollar peg would be maintained via the fluctuations of its sister coin, luna, said James Titcomb in The Sunday Telegraph. Many were not surprised when it collapsed, but were shocked when “supposedly more secure coins” backed by cash reserves also wavered.

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