Bitcoin and other cryptocurrencies tumbled Thursday amid a massive sell-off in the space, triggered by a risk-off and collapse of stablecoins. Based on estimates from CoinMarketCap, about $200 billion in wealth was wiped from the cryptosphere in 24 hours.
Bitcoin dipped below $26,000 Thursday morning before recovering some, down about 11% over the 24-hour period. Ethereum lost around 20% of its value and Solana lost 30%.
While there’s a general sell-off in risk markets now, the decimation of cryptocurrency is more tied to current financial catastrophes in the stablecoin space with TerraUSD (UST) and its sister coin, LUNA.
Stablecoins are supposed to be volatility-free cryptocurrency pegged to a stable currency, like the U.S. dollar. Investors expect it to be a safe place to store crypto assets in between trades. Many are backed by actual assets, but Terra is backed by an algorithm instead.
This week, UST, which is meant to be a one-to-one peg to the dollar, depegged, plunging as low as 26 cents. The collapse of it and Terra-backed LUNA, which went from trading around $80 to zero cents in less than a week, is rippling through the rest of the cryptocurrency space.
By Thursday afternoon, Terraform Labs announced it halted the Terra blockchain because the price of LUNA was too low to “prevent governance attacks.”
The Terra blockchain was officially halted at a block height of 7603700.https://t.co/squ5MZ5VDK
Terra validators have decided to halt the Terra chain to prevent governance attacks following severe $LUNA inflation and a significantly reduced cost of attack.
— Terra 🌍 Powered by LUNA 🌕 (@terra_money) May 12, 2022
