As investors digest the effects of macroeconomic headwinds, cryptocurrency prices have fallen. This could spell additional volatility for the virtual currency market. The first flashpoint is Russia’s invasion of Ukraine. According to economists, this conflict could wipe out 45.1% of the Ukrainian economy by 2022. Cryptocurrencies are also susceptible to these headwinds, so investors should be cautious when buying cryptos.
Terra
If you’re a cryptocurrency enthusiast, you’ve likely noticed that the prices of both Terra and Cryptos are tumbling. In the last year, the price of Terra was at a record high. By the end of the year, the coin had a $10 billion market cap. However, the price has plunged by over 50% since then. This is largely because Terra has been de-pegged.
The sudden fall in the price of Terra has caused panic among investors. The algorithmic stablecoin has crashed nearly 100% overnight. The price of Terra has gone from $0.60 to $0.65 in as little as three days. The price has since recovered, but investors are still worried. It’s currently trading at $0.9, or around nine percent below where it was yesterday.
In the past week, Cryptos and Terra have struggled to maintain value. Initially, Terra was a massive project with a large market cap. It even reached among the elite crypto market. However, the crypto market has extreme volatility, and even large names can lose their value. This winter’s crypto winter has shown that any cryptocurrency can fail, and larger coins will be hit the hardest.
The recent decline in the prices of both cryptos has prompted several government regulators to take action. The Federal Reserve’s chairman Jerome Powell warned that digital money poses a threat to the stability of the U.S. financial system. The SEC also called for the regulation of stablecoins.
The UST stablecoin, a form of crypto currency, has lost its peg to the U.S. dollar, and its UST has yet to regain its $1 value. It’s dropped to 66 cents, then recovered to 79 cents, but remains far from the $1 value that it once had.
The Federal Reserve warned against using stablecoins to meet margin requirements, warning that they can lead to unstable demand and increased risks of redemption. While many investors have lost money in stablecoins, it’s possible that the current volatility in cryptos will affect Terra as well.