Why did Terra and Bitcoin crash and are cryptocurrencies rebounding now?

“Meltdown”, “turmoil”, “financial disaster”. It has been quite a week for the world of cryptocurrencies as markets plummeted and the value of investors' holdings in digital assets such as Bitcoin and Terra rapidly diminished.

Bitcoin was set for a record losing streak while Terra, a stablecoin, collapsed to close to zero on Thursday.

But what happened? Why did the crash occur and is it now over?

What happened to Terra?

Stablecoins, which are pegged to the value of traditional assets such as the US dollar, are usually popular in times of turmoil. They are key elements of the cryptocurrency market and traders park funds in these assets as they move in and out of other digital tokens.

However, Terra slipped below its 1:1 peg to the dollar this week, as global stock markets fell amid rising interest rates and high inflation.

Terra's value is derived by algorithmic processes and it is linked to another paired token called Luna.

Luna fell by more than 94 per cent on Wednesday to almost zero, compared with a high of $119.51, and the blockchain behind both coins twice stopped processing new transactions.

BUSINESS, CRYPTOCURRENCIES, BITCOIN, PERSONAL FINANCE

The blockchain’s validators unveiled a software update designed to help avoid attacks on the network.

The largest stablecoin, Tether, also diverged from its 1:1 peg, although marginally.

Read More : https://www.thenationalnews.com/business/cryptocurrencies/2022/05/13/why-did-terra-and-bitcoin-crash-and-are-cryptocurrencies-rebounding-now/

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