The cryptocurrency market is in a storm after the collapse of Luna, a so-called stablecoin digital currency, supposedly pegged to the US dollar. Its fall has sown a wind of panic on the entire cryptocurrency market, already feverish.
This is the biggest crash in the history of cryptocurrencies. Luna, a decentralized digital currency created by the Terra network, crashed 98% in 24 hours to below 0.18 cents on Thursday morning.
This cryptocurrency, which was part of the world’s top 10, was worth nearly $120 in early April. It was designed as a “stablecoin”, less volatile. This did not prevent its abysmal fall and almost total losses for investors.
In order to prevent any possible governance attack, the blockchain has just been shut down for an indefinite period.
Soros’ stunt
Responsible for this plunge is a speculative attack suffered on Wednesday: a downward bet, similar to the one that allowed billionaire Georges Soros to bend the pound Sterling.
“Some speculators, especially American hedge funds, wanted to repeat the Soros stunt in the 90s. These speculators massively shorted bitcoin and Luna. They sold it and the drop caused investors and speculators to panic, whether they are professionals or even private customers”, explains Charles-Henri Sabet, the managing director of Flowbank, who follows this market closely.
Asset managers Blackrock and Citadel Securities, as well as cryptocurrency exchange Gemini, are believed to have played a role in the fall.
Shaken confidence
Anyway, the sinking of the Luna took all cryptocurrencies with it. There are thousands of them and for many the declines have been massive. Bitcoin and Ethereum, the biggest on the market, managed to limit the breakage, with a 30% drop over 7 days.
According to Esty Dwek, chief investment officer at Flowbank, confidence is damaged: “On the Luna in particular, since the algorithm, which was to keep the exchange rate balanced, did not work. On cryptocurrencies in general, I think that It’s a little too early to talk about a loss of confidence. We see that the market is fragile anyway. Bitcoin and Ethereum have held up better and we may have a little more differentiation between cryptos. Everything is not going to skyrocket as we have seen in other episodes“, she anticipates.
Correlated to Nasdaq
The cryptocurrency market is therefore in a bad patch and a trend is confirmed, that of a correlation with technology stocks: the Nasdaq, the American stock market index, has lost 15% in the last 7 days.
The market is falling everywhere, affected by the war in Ukraine, inflation and the rise in interest rates by the American Central Bank.
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