Cryptocurrencies will be everywhere, predicted a few days ago Changpeng Zhao, the almighty head of the Binance buying and selling platform, one of the richest men on the planet. The power of the firms linked to this new digital universe is already visible in aggressive advertising campaigns —even in the exclusive intermission of the SuperBowl— and in the sponsorship of such emblematic stadiums as the Los Angeles Lakers basketball court and events such as the recent Mutua Madrid Tennis Open.
In the last few hours, however, his name has been linked to fear: Bitcoin deepened its falls this Monday and has lost half its value in just six months. This Tuesday, the main cryptocurrency took a breather and rebounded more than 5%. But the waters are far from returning to normal: Luna, one of the most popular coins – also among small investors – has lost more than 50% in just 24 hours, and Terraform Labs, the Singapore-based company behind of its launch, has had to come to the fore to try to calm the waters.
Despite being practically unknown to the general public, there are cryptocurrencies whose value is counted in billions. In the case of Luna, after the collapse, its market value is around 10,000 million euros, in 14th place by capitalization. If it is compared with companies in the real economy, it is still above the airline IAG, owner of British Airways, Iberia and Vueling, with a stock market value of just over 8,000 million.
The collapse of its price has come because UST, Luna’s stable currency, has lost parity with the dollar. The so-called stablecoins They are considered a refuge for investors in times of volatility, since their price is linked to that of safe assets such as gold or the dollar, which tend to fluctuate much less. In the case of UST, that is achieved through an algorithm and the backing of its large bitcoin reserves—Terraform Labs has committed to reaching $10 billion in bitcoin. However, by losing equality with the dollar, the vicious circle of mistrust, sales and doubts about its credibility now threatens its future. A UST has been exchanged below 0.70 dollars despite the fact that they have no reason to exist if they do not maintain parity with the greenback. Hours later, the situation improved somewhat and at noon it was exchanged for 0.90 dollars.
The problems of bitcoin and Terraform Labs feed off each other. The fall of the former causes the reserves of the latter to lose value. And Terraform Labs has resorted to selling off some of its bitcoin at a loss to keep the price of its stablecoin afloat amid the turmoil. The biggest fear is to avoid the call death spiral -death spiral-, for which, the fall in the price of Luna would force Terraform Labs to mint more and more units of this currency to maintain parity with the dollar of its stablecoin UST, in an endless process until total collapse. The CEO of Terraform Labs, the South Korean Do Kwon, has released a brief message on Twitter to insist that they are using their resources to return prices to normal. “Deploying more capital”, he has announced.
He knows in depth all the sides of the coin.
The decline has already caused considerable damage to the portfolios of thousands of minority investors, who have seen more than half of their money disappear in a matter of hours. And it can increase mistrust of the crypto ecosystem if the firm fails to reverse losses.
concern about bitcoin
Meanwhile, the slight rebound in bitcoin has not allayed fears about its evolution. This Tuesday it is exchanged for 31,000 dollars, more than 50% below the price of six months ago. Among the nervousness, there are those who remember that the digital currency has already experienced similar falls in the past, from which it later rose with more force to hit new highs, and they believe that it is time to endure and accumulate. But that is not always possible: those who bought more expensive and need the funds in the short or medium term will be forced to sell at a loss. And past revaluations do not guarantee future ones either.
Companies such as the American software firm MicroStrategy, which has made the accumulation of bitcoins its true business model, are noticing the consequences of the tensions in the crypto market on the stock market: this Monday it fell 25%, and so far year has lost 60%. Coinbase, the American cryptocurrency trading platform listed on the Nasdaq, dropped 19% yesterday, and 66% in 2022. Among cryptocurrency investors, however, there are those who point out that the sector should not be left for dead taking into account that equal or greater falls have also occurred in technological giants such as Netflix or Zoom. And others like Amazon, Google and Facebook, although they have suffered somewhat less vertiginous declines, are in deep red in this black year for internet firms.
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