‘Evil genius plot’ behind crypto crash

The cryptocurrency market lost billions in value after an epic failure and now the accusations are flying that something sinister happened.

People have seen their savings wiped out by the cryptocurrency bloodbath and homes are at risk as US$200 billion ($291 billion) has been wiped out of the crypto market in just 24 hours.

The chaos in the cryptocurrency world was the result of a sell-off, as frightened investors rushed to offload their assets – but no one knows what caused two of the biggest players in the game to crash. industry.

Bitcoin has fallen from a high of $69,000 to under $25,500 this week, but it’s not the most well-known crypto in the world that has sent the massive shockwaves through the industry.

Instead, it was the crash of terra (UST) and its sister token luna.

Terra is known as “stablecoin” – cryptocurrencies that are “pegged” to the US dollar or other traditional assets, which in theory protected them from market bloodbaths.

This means that an investor should be able to sell a token at any time and get 1 USD in return.

The idea behind this arrangement is that if terra fell below US$1, it could be swapped for luna, which was supposed to provide stability – but this week the two crashed simultaneously, with luna collapsing by 98% devastating.

Terra, which was one of the most valuable stablecoins in the world, saw its value drop below US$0.20.

The extreme sell was the equivalent of panicked people rushing to the banks and withdrawing all their money.

Luna’s crash alongside terra has been described by experts as a “death spiral”, as it surged from around US$86 earlier this week before plunging to US$0.003 on Friday.

The essential collapse of luna, which saw its market value drop from $40 billion to around $500 million, had a ripple effect on the broader cryptocurrency market, with the price of bitcoin falling to its lowest level since December 2020 and ethereum also falling by 16 percent.

“Abusive trade”

Social media kicked into high gear – pointing the finger at major US hedge funds and trading companies for causing the meltdown due to billions involved in deals plummeting.

Some of the major US investment firms, including BlackRock and Citadel Securities, were quick to deny any involvement.

Still, Lisa Wade, CEO of blockchain company DigitalX, said it was too early to tell whether the momentum for the crash was created by collusion, it seemed “abusive”.

“Conspiracy theorists would say ‘yes’, because it’s a massive trade. I mean, in my entire career, it’s one of the greatest jobs I’ve seen,” she told the ABC.

“It’s almost like an evil genius conspiracy, because there are a lot of steps to go through.”

She described the plot as complex – it involved buying $1 billion worth of terra, betting on bitcoin’s price falling in a move called “shorting”, as well as looking to time it when fewer eyes were on the market.

Saturday night was their target, as that was when trading volumes were low, she explained.

Simply put, it saw terra selling off in massive volumes which then sparked a feeding frenzy of more selling which broke the stablecoin system and also rolled into other cryptos with bitcoins also unloaded.

“Luna was hit because that’s the underlying [backer] of the UST. Thus, whenever a UST [token] is bought, a luna [token] is burned, which means there are fewer tokens available, so the price of luna goes up,” she said.

But the reverse applies when people start selling and a huge amount of luna has flooded the market causing prices to drop, she added.

“And if there are no buyers and the price goes down, then it starts feeding on itself because people start panicking and selling Luna,” she said.

“It was an exploitative trade that took advantage of weaker markets. The perfect storm was that no one stepped in to buy bitcoin and UST.

The human fallout

Heartbreaking stories have been shared on the TerraLuna Reddit page with moderators pinning a list of suicide prevention hotlines from around the world to the top of the page.

“I lost more than 450,000 USD, I cannot pay the bank. I will soon lose my house. I will become homeless,” one person wrote on the forum.

Another said he lost all his life savings after buying Luna for $85, while others said he lost $50,000 overnight.

“I should have cashed out when it was $100, so I would have made $25,000,” one user said.

“But I got greedy hoping to get more money so I could at least pay a down payment for a house for my family. I guess no house and savings then.

Terra and Luna creator, South Korean Do Kwon, described the crash as an “attack”.

“I’ve spent the last few days on the phone calling members of the terra community – builders, community members, employees, friends and family, who have been devastated by the UST unrooting,” he said. tweeted Saturday.

“I’m sorry for the pain my invention has caused you all.”

Ms Wade added that it was heartbreaking that mum and dad investors who had used their life savings to back stablecoins offering a 20% return were caught up in the meltdown.

“So a lot of innocent people had saved their money thinking they were getting risk-free deposits,” she said.

And after?

Terra’s takeover seems unlikely, with its backers finding little momentum to raise US$1.5 billion to boost its value and restore it to par with the US dollar.

Mr. Kwon seemed to suggest on Saturday that it was over for the way the stablecoin operated.

“I still believe that decentralized economies deserve decentralized money – but clearly USD in its current form will not be that money,” he tweeted.

“Neither I nor any of the institutions I am affiliated with have benefited in any way from this incident. I didn’t sell luna or UST during the crisis.

He added that there were “several proposals” on the best next steps.

“What we should be looking to preserve now is the community and developers who value the block space of terra – I’m sure our community will form a consensus around the best path forward for them- even and will find a way to get back up,” he said.

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