TL;DR: It's been a nightmare week for cryptocurrency holders as the market crashes and Bitcoin hits its lowest price since December 2020. Ethereum, BNB, XRP, and many other digital coins have also fallen to their lowest levels in a long time. The crisis came after stablecoin Terra, designed to trade 1:1 with the US dollar, collapsed.
TerraUSD (UST), the 11th largest cryptocurrency by market cap, is an algorithmic stablecoin that uses a set of smart contracts to ensure its value stays as close to $1 as possible. But after hovering at around $1 for about a year, it crashed to 29 cents yesterday, plunging its market cap from more than $45 billion to less than $5 billion. It has since rallied to 62 cents, but that's still far from $1.
Terra's support coin, Luna, has also plummeted in dramatic style, going from $86 at the start of the week to its current price of 20 cents. Terra is designed so traders can exchange 1 UST for $1 worth of Luna, no matter the price of UST
What's most shocking to me is not the death spiral, which was completely predictable, but the sheer number of intelligent people who bought the hype. Highly disappointing moment that should lead to some real self-reflection. https://t.co/xPrncOXzFI--- Jeremy Allaire (@jerallaire) May 11, 2022
Do Kwon, co-founder of Terra developer Terraform Labs, tweeted: "I understand the last 72 hours have been extremely tough on all of you - know that I am resolved to work with every one of you to weather this crisis, and we will build our way out of this."
Terra's collapse has impacted many cryptocurrencies, the most notable being the biggest one of all: Bitcoin. At the time of writing, BTC is at $27,236, its lowest value since before the crypto boom at the end of 2020. Bitcoin has now lost nearly two-thirds of its value since peaking at $69,000 in November 2021.
Ethereum is at $1,882, a level it hasn't seen since July last year. Dogecoin, Solana, Cardano, BNB, Polygon, and others have also seen their prices crash this week as panic spreads across the markets.
While Terra's collapse is primarily why almost $1 trillion was wiped from the crypto market this week, other factors such as rising inflation and Russia's invasion of Ukraine have exacerbated the problem.
MarketWatch reports that Terra's fall could result in regulators placing more scrutiny on stablecoins. At a hearing on Tuesday before the Senate Banking Committee, Treasury Secretary Janet Yellen said that Terra's crash "simply illustrates that this is a rapidly growing product and that there are risks to financial stability and we need a framework that's appropriate."
The good news for non-crypto-owning gamers is that the freefall will doubtlessly make mining less profitable, and should push graphics card prices even closer to MSRP.