Cryptocurrency markets are shaken after a popular token lost 99% of its value, dragging a so-called “stablecoin” with it.
The Terra Luna token fell from a high of $118 (£96) last month to $0.09 on Thursday.
The collapse had a domino effect on a linked token, TerraUSD, which is usually stable.
And frightened investors are now pulling out of major cryptocurrencies, causing markets to plummet.
The companies behind stablecoins are trying to make sure they stay the same with assets like the US dollar — say, a $1 token.
But on Thursday, Tether, the most popular stablecoin, also fell from its US dollar peg to an all-time low of $0.95.
The term “cryptocrash” has been trending on Twitter and Google Search.
And the combined market value of all cryptocurrencies is now reportedly $1.12 trillion, about a third of its November value, with more than 35% of that loss coming this week.
According to trading website Coin Market Cap, one bitcoin is now worth about $27,000, its lowest since December 2020 and down from a peak of nearly $70,000 late last year.
Ethereum, the second largest coin by value, has lost 20% of its value in 24 hours.
“The collapse of TerraUSD triggered what we used to call ‘the panic,’ as major financial institutions sold large chunks of their assets and everyone else tried to withdraw their money as quickly as possible,” said economist Frances Coppola.
“Panic is exactly what’s going on here.”
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On Wednesday, the founder of Terraform Labs, the company behind TerraUSD and Terra Luna, tweeted, “I understand the last 72 hours have been extremely tough for all of you – know I am committed to working with each and every one of you to make this happen.” get through the crisis and we will build our way out of it.”
A plan to prop up Terra Luna by creating more tokens has been outlined – but after losing large sums, many Twitter users are asking the company for help.
Meanwhile, the company’s Discord server, a platform where investors gather to discuss issues, released a statement saying it was “locked down to prevent new people from coming in and spreading fear, uncertainty, doubt and misinformation.” .
At Tether, the chief technology officer took to Twitter to reassure his token holders that the company has enough cash reserves to pay anyone who wanted to sell.
Paolo Ardoino tweeted: “[A] Reminder that Tether honors [Tether] $1-$300 million in redemptions redeemed [the] last 24 hours without a drop of sweat.”
Lawmakers and officials in a number of countries have called for regulation of stablecoins.
US Treasury Secretary Janet Yellen cited the collapse of TerraUSD in a Senate committee meeting on Tuesday to call for renewed robust regulation.
“It just shows that this is a fast growing product and there are risks to financial stability and we need a proper framework,” she said.
A UK Treasury report last month also laid out plans to regulate stablecoins, which it predicted would become a “widespread means of payment.”
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