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There is no doubt Terra LUNA price crash is dominating the cryptocurrency market news. How can a coin with so much market confidence fall so hard? With the price recording a 97% fall, analysts and investors can’t understand what’s happening.
However, the whole crypto market is receiving a lot of hammering currently with the big boy Bitcoin trading below 30,000 dollars for the first time in many months.
For a long time, cryptocurrencies have experienced huge volatility levels but not to the level Terra is experiencing.
What is Terra?
Terra represents (supposedly) the future of cryptocurrencies by positioning itself as the solution to immense volatility in the market. It relies on the Stablecoins under fiat pegging to power the terra payment system.
So much was the idea of this innovation popular that the coin achieves a peak market cap of 41 billion dollars. Founded by both Kwon and Daniel Shin, Terra uses an algorithm-based strategy to adjust its coin supply to maintain demand stability.
The development of Terra (LUNA) commenced in 2018 with the first tokens hitting the market in April 2019. Currently, the token has a supply of 2.6 billion coins.
Advantages of Stablecoins
Stablecoins have positioned themselves as the fathers of price stability in the cryptocurrency market. They achieve this by pegging their value to an existing financial assets such as fiat currencies and commodities.
Some of the leading Stablecoins in the market include Tether (USDT) and USD Coin (USDC).
This pegging though has been a source of controversy with some analysts questing the availability of reserves to support the Stablecoins value. Although Tether leads this pack, it is also among the most controversial Stablecoins in the market.
Why is the Terra LUNA price crash happening?
Most analysts believe the crash of Terra LUNA originates from its very own strength. The algorithmic market stabilization strategy.
The algorithmic strategy to regulate demand and supply is still new in the market with most developers yet to achieve a perfect formula.
This algorithmic failure comes at a time when the market in its entirety is bearish. The combination of market sell-off and failure by the Terra algorithm are some of the key factors that have led to this historical Terra LUNA price crash.
The sudden sell-off this week has also prompted investors to cash out with the majority of trades hitting stop losses. Currently, the coin is trading at 0.21 dollars.
Future of Algorithm Coins
The current experience with the Terra LUNA crash is putting into question the viability and stability of algorithm-based coins.
Investors will likely shy away from putting their money in such assets. However, some believe the coin was a Ponzi scheme and was operating in its last days.
Whatever the case is, Investors in the token are counting some of the heaviest losses in the market so far with the key question now being whether the coin ever gets to its former glory.
However, you can never rule anything out on cryptocurrencies. Previous experience has shown they always rise higher after a heavy downfall such as the one we are experiencing today.