Is Crypto entering another winter?

Some investors are starting to see value in the technology that underpins cryptocurrencies. They seem to have latched on to the idea of blockchain technology.

Between early 2018 and mid-2020, prices of cryptocurrencies went down and stayed put. Innovation in crypto came to a halt during this time. These roughly 20 months is remembered as “crypto winter”.

There is sense that the season is coming back again. Cryptocurrencies have always been volatile; they suffer large drops by as much as half their value sometimes. But such fluctuations haven’t kept diehard fans of crypto from buying the digital assets while their prices drop.

Last year’s bull market saw Bitcoin rise as much as $60,000. But now, the virtual currency that marked the beginning of cryptocurrency revolution is trudging at half that price.

The Luna debacle last week punctured high hopes investors placed on a stablecoin tethered to the U.S. dollar. Luna had been one of the world’s most popular cryptocurrencies and its downfall, alongside TerraUSD, caused mayhem across crypto markets globally.

In late April Luna was worth nearly $100, but now it is trading at a fraction of a cent. On May 10, TerraUSD’s 1:1 peg against the U.S. dollar crumbled.

Unlike the popular stabecoin Tether, which is backed by cash or other traditional assets, TerraUSD is supported by an algorithm and is in turn linked Luna. The assumption by the founder of the crashed cryptocurrency that when the value of one stablecoin is linked to another, their prices will be intact was shattered.

Luna’s fall confirms the “death spiral” theory several crypto experts pointed out a couple years ago. According to them, a drop in the value of one currency will pull down the value of its linked asset.