UST depeg causes fear in the market
The crypto market has gone down over 20% in the last 24 hours after popular algorithmic stablecoin UST depegged twice. Currently, it is trading around $0.91. While inflation woes and the recent fed rate hike primarily caused this correction, it's clear that the UST situation is fueling the larger decline in crypto.
Terra CEO Do Kwon purchased billions of dollars in Bitcoin as a collateral for UST only to sell most of it as a result of this depeg. The price of LUNA, the coin normally responsible for its peg, has plummeted over 50% in the last 24 hours as investors flee for safer assets.
We recently covered in our last article how Bitcoin dropped below $35,000 for the first time since February. Since then, Bitcoin has dropped another 4k to around $30,900 after losing the $35,000 support level. This is the first time the price has done this since July 2021.
Stablecoin regulations incoming?
Treasury Secretary Janet Yellen his since called the UST situation a good example of the rapidly growing risks of stablecoins. It would seem that venture capitalists and other big investors also picked the wrong stablecoin to short; Tether has sustained its dollar peg, while UST lost its. Tether still has its problems, but it goes to show that many experts can get things wrong.
Since two top stablecoins are now being scrutinized heavily by the US federal government, regulations may be coming in the next few months.
This decline has convinced many investors that we are now in a bear market. It's an accurate assumption based on the broad decline of global financial markets. As outlined in our previous article, if Bitcoin failed a key support level at $30,000, the price could decline to $28,000 or less. While this is indeed a possibility since bottoms are nearly impossible to predict, the news of an Australian Bitcoin Spot ETF launching on Thursday could give a boost to the market.