Major crypto tokens rebounded on Wednesday following a sharp selloff in the previous session. However, the gains remained limited, suggesting weak market sentiments.
The crypto cart is still feeling the aftershocks of global economic turmoil and geopolitical worries. Rising inflation, hawkish central banks and a plunge in trading volumes are hurting the crypto space.
Barring Terra and the dollar-pegged Tether, all major crypto tokens witnessed some gains. Shiba Inu rallied 9 per cent, followed by a 4 per cent rise in Solana. Avalanche, XRP and BNB gained 3 per cent each.
The global cryptocurrency market cap was trading sharply lower at $1.43 trillion, rising a per cent in the last 24 hours. However, the total cryptocurrency trading volume dropped about 14 per cent to $156.55 billion.
"The Terra network wants to buy $10 billion in Bitcoin as a UST reserve in order to keep the stablecoin's value stable, the only reason for backing UST with Bitcoin," said WazirX Trade Desk.
"They have accumulated almost $3 billion worth of BTC but with the recent fall of BTC to 29K, UST had lost its peg and the price of UST went down to $0.65 but it has now recovered to $0.95" it added.
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LUNA prices crashed below $30 which is almost 75% down from its all-time high of $119.18 in April 2022. UST, the stable coin of Terra network, crashed to its all-time low of $0.6841. Since UST and LUNA are interconnected, the stablecoin losing its peg had a serious effect on LUNA prices as for every UST traded, a LUNA is burned and vice versa.
The destabilization of UST led to panic selling of the heavyweights like BTC and ETH which increased the overall market volatility.
The recent UST crisis has revealed major loopholes in the algorithm-backed stablecoin system which will need to be addressed publicly to gain back the confidence of the investors.
The recovery of LUNA will depend on the corrective measures taken by the parent network/LGF which has built a large Bitcoin reserve with a series of large-scale BTC acquisitions. Source: The Economic Times