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  /  cryptocurrency   /  Crypto Doomsday is Nearer Than We Thought! Experts Warn
Crypto

Crypto Doomsday is Nearer Than We Thought! Experts Warn

Experts are worried about the death of thousands of crypto assets in the near future.

There are more than 19,000 crypto-assets in existence, along with dozens of blockchain platforms. A blockchain platform, such as Ethereum, is the underlying technology that many of these different cryptocurrencies are built upon. The recent collapse of the so-called algorithmic stablecoin, TerraUSD, and its associated digital token Terra LUNA has sent shockwaves through the market, and has thrust a spotlight on the thousands of other crypto assets in existence and whether they will all survive or not.

 

The Chaos in the Crypto World has Ensued

The price of Bitcoin plunged to its lowest point since 2020. Coinbase, the large cryptocurrency exchange, tanked in value. Terra, a cryptocurrency that promoted itself as a stable means of exchange collapsed. And more than US$300 billion was wiped out by a crash in the crypto prices over the last few months. The crypto world went into a full meltdown this week in a sell-off that graphically illustrated the risks of the experimental and unregulated digital currencies. Even as celebrities such as Kim Kardashian and tech moguls like Elon Musk have talked up crypto, the accelerating declines of virtual currencies like Bitcoin and Ether show that, in some cases, two years of financial gains can disappear overnight. The moment of panic amounted to the worst reset in cryptocurrencies since Bitcoin plummeted 80 percent in 2018. But this time, the falling prices have a broader impact because more people and institutions hold the currencies. Critics said the collapse was long overdue, while some traders compared the alarm and fear to the start of the 2008 financial crisis.

The fall in cryptocurrencies is part of a broader pullback from risky assets, spurred by rising interest rates, inflation, and economic uncertainty caused by Russia’s invasion of Ukraine. Those factors have compounded a so-called pandemic hangover that began as life started returning to normal in the United States, hurting the stock prices of companies like Zoom and Netflix that thrived during lockdowns. But crypto asset’s decline is more severe than the broader plunge in the stock market. While the S&P 500 is down 18 percent so far this year, Bitcoin’s price has dropped 40 percent in the same period. In the last five days alone, Bitcoin has tumbled 20 percent, compared to a 5 percent decline in the S&P 500.

 

The ‘Before’ Scene

How long the crypto market’s collapse might last is unclear. Cryptocurrency prices have typically rebounded from major losses, though in some cases it took several years to reach new heights. The origins of cryptocurrencies trace back to 2008 when a shadowy figure calling himself Satoshi Nakamoto created Bitcoin. The virtual currency was portrayed as a decentralized alternative to the traditional financial system. Rather than relying on gatekeepers like banks to facilitate commerce, Bitcoin proponents preferred to conduct transactions among themselves, recording each one on a shared ledger called a blockchain. Prominent tech leaders including Mr. Musk, Jack Dorsey, a founder of Twitter, and Marc Andreessen, an investor, embraced the technology as it grew from a novel curiosity into a cultlike movement. The value of cryptocurrencies exploded, minting a new class of crypto billionaires. Other forms of cryptocurrency, including Ether and Dogecoin, captured the public’s attention, particularly in the pandemic, when excess cash in the financial system led people to day trade for entertainment.

 

The Deathrow Started with Terra

Crypto prices reached a peak late last year and have since slid as fears over the economy grew. But the meltdown gathered momentum this week when TerraUSD, a stablecoin, imploded. Stablecoins, which are meant to be a more reliable means of exchange, are typically pegged to a stable asset such as the U.S. dollar and are intended not to fluctuate in value. Many traders use them to buy other cryptocurrencies. TerraUSD had the backing of credible venture capital firms, including Arrington Capital and Lightspeed Venture Partners, which invested tens of millions of dollars to fund crypto projects built on the currency. That gave “a false sense of security to people who might not otherwise know about these things,” said Kathleen Breitman, one of the founders of Tezos, an eminent crypto platform. But TerraUSD was not backed by cash, treasuries, or other traditional assets. Instead, it derived its supposed stability from algorithms that linked its value to its sister cryptocurrency, Terra LUNA.