The End of Crypto Winter — Can Crypto Recover?
Cryptocurrency suffered catastrophically in November. When FTX, one of the top three cryptocurrency exchanges in the world, filed for bankruptcy, the cryptocurrency market fell precipitously. One of the largest crypto lending projects, Block-Fi, continued the awful failure pattern in the blockchain industry. Investors are now reluctant to invest once more. However, they will only re-enter the ecosystem and revive the market. Is it possible for crypto to recover?
Forbes claims that the $1 trillion market collapse was brought on by the FTX meltdown. However, the market decline did not occur at once following the FTX and Block-Fi incidents. It began with the collapse of Terra UST and Luna at the beginning of 2022 itself.
The Extinction of Terra-Luna
The market lost $60 billion, according to estimates, because of the Luna crash. Two coins based on the Terra Blockchain network are Terra UST and Luna. Terra UST was not tied to the actual treasury like other stablecoins. Instead, an algorithmic design was used to keep its value close to USD (US Dollars). Luna, its identical coin, served as its backer. This means that you can exchange your Terra UST for Luna worth one dollar whenever you want.
The Terra blockchain’s native cryptocurrency was Luna. The token could be used to pay the network’s transaction fees. Additionally, Luna will be issued in greater quantities the more transactions that take place on the Terra Blockchain.
Forbes’ analysis shows that up until its peak in April 2022, Luna’s price increased by 135% in less than two months. Staking UST on the Anchor protocol, a decentralized platform built on the Terra Blockchain itself, supplied the primary advantage of holding UST: an APY of approximately 20%. Due to the platform’s incredible returns, many people were skeptical. On May 7, 2022, the effects began. The price of the coin dropped to $0.91 as stake holders of UST on Anchor began to withdraw and sell the token. When people began exchanging UST for Luna, the process of minting tokens for Luna took over. The market was shaken by panic because of the low price of UST and the excessive supply of Luna. As a result, individuals started selling Terra UST and LUNA, and exchanges delisted LUNA.
The incident brought about winter throughout the market. Three Arrow Capital and Voyagers filed for bankruptcy, in addition to LUNA’s demise. It has shaken the crypto investors’ faith.
The crypto market was just beginning to recover from the shock when another thunder struck the sector. One of the best crypto exchanges, FTX, declared bankruptcy.
The FTX Saga
FTX is a cryptocurrency exchange that earned its place among the top three worldwide. Almada Research, FTX’s sister company, borrowed money against FTT, FTX’s native token. People began selling FTT after the news was leaked to the public, resulting in a liquidity crisis for the exchange.
The price of the FTX token reached its lowest point, and as a result, FTX was unable to return the user’s funds. FTX filed for Chapter 11 bankruptcy shortly after. Once more, people began to lose faith in the cryptocurrency market. In the past two years, even the well-known cryptocurrency Bitcoin reached its all-time low. One of the most well-known crypto lending platforms, Block-Fi, experienced a bank run because of the trend.
As a crypto investor, it is obvious to withdraw your money when the market is on the edge of a breakdown. However, industry leaders took the step to regain trust. Crypto exchanges coined the idea of Proof-of-Reserve.
Crypto winter may end when investors again start pouring money. The firm believer in blockchain technology is still bullish. Ether will be used to create a decentralized ecosystem; Bitcoin is still the best way of making Peer-to-Peer transactions.
The winter could last for some time. However, it is predicted to return to life.
The recent upgrade to Ethereum known as Merge has the potential to significantly alter the current landscape of the crypto market, as predicted by JP Morgan. Developers will be encouraged to investigate added use cases because of the merger’s predicted 99.95% energy savings. In addition, several regulatory bodies are contemplating a legal requirement for the cryptocurrency industry, which may further help in the revitalization process.
