- Bitcoin fell under $30,000 for the first time in 10 months yesterday
- Holders de-risking seems to have sparked the crash, aided by UST’s collapse
- The ‘stablecoin’ dropped to $0.60 as the experiment failed
Bitcoin’s downtrend continued yesterday, tapping a critical support at $29,000 as TerraUSD, the so-called stablecoin tied to the LUNA cryptocurrency, spectacularly lost its peg. The concept of Bitcoin being a hedge to inflation, if anyone seriously thought that could happen, is now firmly put to bed as it continues to do what other risk-on assets are doing and sees red, with concerns of a global recession growing.
Bitcoin Continues to Slide
As we outlined yesterday, Bitcoin was already on shaky ground given its recent performance, and the negative thesis played out, with Bitcoin dumping right down to a critical level of support:
This level appears to have held for now, although the financial conditions around the world would suggest that the downside may not be finished yet. Fears over a global recession are growing, and with Bitcoin still being a risk-on asset it is not one that speculators will want to hold if the worst plays out.
The idea of Bitcoin being a hedge against inflation is a nice theory, but it is still too young and volatile to be considered such, which is why it is one of the first things to go when money is tight. This is in comparison to the US Dollar Index, which continues to push higher, proving that, for now, cash is king.
UST Experiment Fails With 40% Collapse
Of course, exactly which dollar you choose to buy will have an impact on your wealth, with Terra’s UST coin proving that not all dollars are made equal. The ‘stablecoin’, which was heavily lauded by LUNA lovers over its algorithmic design in recent months and the interest that buyers could earn through other mechanisms, spectacularly lost its peg yesterday, dropping as low as $0.60 per dollar:
This collapse elicited huge amounts of schadenfreude, even for the crypto space, with many unsurprised to see the events that unfolded:
It’s funny that with this $UST fiasco, about everyone with at least 10 brain cells saw it coming since March.
— Livercoin (@Livercoin) May 10, 2022
No matter how this ends, I don’t want people to call UST decentralized again. Even the little collateral backing it has is intransparent and controlled by a single party. Used to perform discretionary open market operations. This is like 10x worse than the Fed.
— Hasu⚡️🤖 (@hasufl) May 9, 2022
It seems, then, that the great UST experiment has failed, with many getting burnt and the risk to the crypto system as a whole now clearly exposed. The community was lucky that this happened so soon into Terra’s UST program – one dreads to think what would have happened if it was 10x the size.
