Crypto Wrapped: 9th-15th May
Nobody will forget last week in a long time. Unprecedented in its nature, crypto markets plunged as a result of the unpegging of TerraUSD from the Dollar, and the subsequent collapse of TerraUSD’s sister coin, Terra. Starting the week at approximately $67 per token, Terra closed at $0.0002 — making it worth much less than Dogecoin, and closer to Shiba Inu in value than a Dollar. While markets have since steadied, they are reeling from the effects of this collapse, and a lot of questions still remain unanswered about what the next steps are for not just Terra, but the industry as a whole.
If a week is a long time in politics, it’s even longer in crypto. Coming into the new week, markets were trading reasonably steadily, with the likes of Bitcoin and Ethereum looking to claw back some ground they had lost in the previous week. In the week prior, news coming out of the US saw stock markets take a hit which crypto was not immune from, and as a result most crypto markets took some kind of hit too. However, what unfolded last week had very little to do with outside forces, and the crypto collapse that we saw from Tuesday onwards came from within.
The market collapse we saw started on the evening of May 9th, when something very unusual happened to the stablecoin TerraUSD — it became ‘unpegged’. That is, while typically the value of this coin is tied very closely to the value of the US Dollar, at approximately 7pm GST it started to trickle towards $0.99. Then to $0.98. By midnight, UST was worth $0.95. By becoming unpegged, TerraUSD lurched into territory of volatility, that was exacerbated by the fear that such an event had on the market. Designed to be a stable asset choice, all of a sudden, UST…wasn’t.
It is important to highlight too, this may not sound like a significant fall in value nominally, but it is. Generally, crypto markets are volatile, and the possibility of a coin’s value spiking or falling is par for the course in cryptocurrency. However, stablecoins have a very small fluctuation range, which is often to at least 4 decimal places — that is, it’s very rare to see a stablecoin move from $1 to $0.99, and it’s normally closer to being $1 to $0.9990, if anything at all. A shift of one decimal place can be seismic for a stablecoin, so to begin losing cents off its value sent alarm bells through the market.
Worse was of course to come, as we now know. While the damage had been done to UST by becoming unpegged in its own right, it managed to steady itself close to $0.93, with traders undoubtedly expecting a recovery plan to swiftly be announced and the situation to be rectified. However, come the afternoon of May 11th, TerraUSD was trading at $0.30, and a ripple effect was starting to be felt across the market. UST closed the week at $0.17. Confidence had been drained from the Terra market overall, and worse was still to come.
As news gathered of TerraUSD’s unpegging from the USD, its sister coin Terra started to feel the effects and saw a value drop from $65 to $50 come early Tuesday. Interestingly, markets steadied on Tuesday, and were generally up on their previous 24hr positions — albeit from a pretty low base. However, with no sign of a recovery in sight, Terra took a huge tumble that by Wednesday evening saw it trading close to $1.25. Terra started the new week trading at $0.0003062 — less than Dogecoin, and closer to Shiba Inu than $1. 99% of its value wiped out over the course of just a few days. Many believed that these days were behind crypto.
Naturally, these events swept a harsh wind through the market. Benchmark prices for Bitcoin and Ethereum were broken, with Bitcoin trading at $28k on Thursday, and Ethereum close to $1.8k on the same day. The vast majority of major coins also experienced some kind of fall in value. Currently, Bitcoin and Ethereum are above their $30k and $2k benchmarks, but not by a great deal. In context, Bitcoin was trading above $40k just one month ago. The last thing it needed on its road to recovery was a week like this.
The events of the previous week leave traders wondering — how can this happen, will it happen again, and if it does happen again, how will we react? Thankfully, with the market stabilizing, there are signs to suggest that traders are treating this event in isolation, not allowing it to be a reflection on the general state of crypto. Once again though, crypto is having to pick itself up from a market dip that has seen many major coins regress from what were once impressive and enviable positions.
As for Terra, it still remains to be seen how — or, more importantly, if — it manages to make any kind of recovery from this. Confidence will have been drained from the coin, the project, and everything behind it. However, while of course there has been a short term dip in confidence across the market, it isn’t proving fatal like it is for Terra. The road back for it is very long, and many are arguing that the road is closed. With a recovery plan recently announced by the coin’s owner, it is testing times but they aren’t giving up.