Cryptocurrency crash: the end of the dream of an unregulated currency

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In the space of a weekend, virtual currencies have collapsed, the whole sector is teetering. Billions of euros have gone up in smoke. It’s save who can in the world of crypto. Luna, one of the ten largest virtual currencies, lost 100% of its value. While a luna was still trading at 60 dollars in the middle of last week, and 80 at the start of May, it fell to 0.0003 dollars on Sunday: a real crash, with little chance of recovering from it one day. And he did not fall alone.

It is a very powerful and very brutal expiration that the cryptocurrency market has been inviting us to follow for the past three days. Along with Bitcoin and Ethereum falling more than 20% each, the impossible happened to the stablecoin TerraUSD (UST), falling off its dollar tracking on Monday night. All currencies based on the terra (UST) blockchain have collapsed. The blockchain is a technological process that is presumed to be secure, which acts both as an account register – each exchange and each modification is recorded there – but also gives the operating rules of the cryptocurrencies which are based on it. Thus the terra was presupposed to be stable and safe since it was developed in indirect parity with the dollar. The algorithm ensures that a terra trades at $1, leaving the Luna to act as a speculative commodity.

This cryptocurrency was once among the 10 largest in the world and it was worth more than 40 billion dollars last week. Since ? The apocalypse for its investors. A Luna was worth 107.68 euros at the beginning of April? This Friday, it is worth nothing: only 0.00003008 euro. A collapse that almost made Luna disappear. On the American Reddit forum dedicated to this cryptocurrency, the situation is serious. The moderators pinned a message for those who lost everything in a few hours at the top of the page, with numbers for suicide prevention centers in every country in the world. Ruined investors share their misfortune there. “I lost over $450,000. I can’t pay my bank. I will soon lose my house. I will become homeless. Suicide is the only solution for me,” one wrote. A call for help that has generated more than 1,600 comments.

There has been a sharp fall in cryptocurrencies for several weeks, which would be partly linked to the current economic situation. Large multinationals such as Netflix have experienced difficulties with, in particular, the loss of a large number of subscribers. On the political side, the cessation of investments in cryptocurrency on Russian territory has also slowed their progress, as have the restrictions taken by the FED (American Federal Reserve) vis-à-vis these currencies, which are considered to be very volatile and quite unstable. In the case of Terra UST, it was linked by an algorithm to Luna. Investors becoming increasingly wary of cryptocurrency sold off their stocks in droves. The sell demand was so strong on the latter that the UST algorithms did not hold up against this high volatility and collapsed. This shows the limits of these algorithms and of this “Stablechain” market, which is very volatile and not very resistant to shocks like the one of the last 48 hours. Unlike a traditional fiat currency, cryptocurrencies have a limited and controlled supply. With regard to our traditional currencies, the banks have much larger reserves and can inject money by printing money, depending on the economic needs of a country.

In monetary matters, periods of economic slowdown are always favorable moments for experimentation. This is explained at least in part by the ready-made idea that economic crises are due to monetary factors, and that therefore a monetary solution is needed. Either there is too much liquidity, which leads to inflation, or there is too little, which leads to depression. This is why the actors of the monetary reforms want to avoid any disorder likely to harm the “real economy”, in other words production and trade. It is in this context that we must understand the appearance of cryptocurrencies, the latest fashion in monetary matters. These “peer-to-peer electronic liquidity systems” aim to solve economic problems through monetary measures, but by bypassing the banks. “Why use these sickly intermediaries”, ask the creators of cryptocurrency, when it is possible to create transaction systems and electronic deposits that are secure and inaccessible to potential controllers? The technical details of these new liquidity systems are difficult to grasp, but not what inspires them. The debut of bitcoin in January 2009 coincides with the banking crisis. Banks were failing or avoiding it with taxpayers’ money. People have therefore sought to keep their money out of the reach of the tax authorities, to avoid depositing it in banks and to carry out their transactions without going through them. The new cryptocurrency offered the solution. Finally this mode of the currency without regulation ended with this Crash, remains the question of the financing of the real economy, which is not any more one priority for the banks which bet on the speculation on Stock Exchange.

“Man is not the master of his destiny and never will be; his very reason always progresses by pushing him towards the unknown and the unpredictable, and that is where he learns new things.” Friedrich August von Hayek

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David Gauvin

Evolution of the TerraUSD/euro parity over the last 30 days. (Source

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Cryptocurrency crash: the end of the dream of an unregulated currency

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