Despite the continuous troubles of stablecoin TerraUSD, which has sparked fear in the crypto market, Bitcoin rose beyond $30,000 on Friday.
According to CoinGecko statistics, the world’s largest cryptocurrency bitcoin was trading at roughly $30,262.85 at 4 a.m. ET on Friday, up 8% in the past 24 hours after dropping to depths not seen since late 2020 earlier this week. However, in the previous seven days, the digital currency has lost 16 % of its value.
The fall of a contentious stablecoin known as TerraUSD or UST, which is intended to be tied one-to-one with the US dollar, has prompted the latest crypto catastrophe, which has seen billions of dollars wiped off the market.
According to CoinGecko statistics, UST has lost its peg and was trading at roughly 14 cents on Friday. As a result, Luna, a token strongly affiliated with UST, is now worth $0.
Luna is tied to UST. UST is an algorithmic stablecoin, which means its $1 peg is expected to be controlled by code. That distinguishes it from other stablecoins like tether and USDC, which are backed by real-world assets like bonds. UST does not have any real-world reserves.
To guarantee price stability, the UST algorithm uses a complicated mechanism of minting and burning tokens. To keep the dollar peg, a UST token is generated by destroying some of the linked cryptocurrency luna. However, UST has been put to the test by high market volatility, and it has been unable to maintain the peg.
The Terra blockchain, which underlies UST and luna, has stopped processing transactions twice in less than 24 hours, adding to the complexities.
Aside from the UST drama, crypto markets have been buffeted by a slew of other headwinds, including increasing inflation and interest rate rises, which have triggered a sell-off in global stock markets, which has filtered down to crypto markets. The price of cryptocurrencies has been linked to stock market moves.
“The Luna/UST crisis has severely harmed market trust.” Most cryptocurrencies have lost more than half of their value. “When you combine this with concerns about global inflation and growth, it’s not looking good for crypto,” said Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno.
Even the significant bitcoin recovery may not be long-term.
“Bounces of ten to thirty % are common in such markets.” These are often bear market bounces that test earlier support levels as resistance, according to Ayyar.