Nearly $200 billion worth of wealth was wiped off from the cryptocurrency market in just 24 hours after TerraUSD stablecoin collapsed. TerraUSD, or UST, which was pegged one-on-one to US dollar, fell sharply below USD 1 mark, while its sister cryptocurrency, Terra Luna also collapsed to nearly $0 after their mechanism for remaining stable failed under selling pressure. As per reports, it was trading below 10 cents on Thursday.
This plunge in the value of stablecoins rippled through the cryptocurrency market, which wiped off a significant amount of wealth from the market. It also depreciated the value of major cryptocurrencies in the market. Bitcoin’s value plunged by as much as 10 percent to $25,401.05 on Thursday, its lowest since December 28, 2020, while Ethereum’s value dropped as much as 16 percent to $1,700, its lowest since June 2021. Similarly, the value of another stablecoin Tether, which is supposed to be pegged 1:1 to the US dollar, too plunged following the meltdown. It’s value plunged to 95 cents as a part of the ripple effect.
According to a Reuters report, Bitcoin, which the largest cryptocurrency by total market value, attempted a bounce early in the Asia session and rose two percent to $29,500, something of a recovery from a 16-month low of around $25,400 reached on Thursday. At the time of writing this story, Bitcoin was trading at $30,317 while Ethereum and Tether were trading at $2079 and $0.998 respectively.
Notably, stablecoins are digital tokens whose value is pegged to the value of traditional assets, such as the US Dollar. However, TerraUSD is a ‘decentralised’ stablecoin (meaning it’s value is not tied to USD, that was supposed to maintain its dollar peg via special algorithms which involved swapping it with another free-floating token. Following the meltdown, Terra developers halted the network’s blockchain on Thursday to prevent attacks following the collapse of its algorithmic stablecoin and the related Luna token. However, Terra blockchain has restarted.
Interestingly, Japanese financial holdings company, Nomura Holdings has started offering over-the-counter bitcoin derivatives to its clients amid the global meltdown. As per a Bloomberg report, the company carried out the first trade earlier this week on CME Group Inc’s platform. It has also partnered with Cumberland DRW LLC for the purpose.
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