Moments of extreme volatility are currently affecting the financial market. The Fed’s fear of raising rates again has led to the collapse of Wall Street indices. This was especially due to actions in the technology segment. Now, the price of cryptocurrency is plummeting, as a result of the crash of crypto Terra USD. Kimberly Rosales is a cryptocurrency expert and founder of ChainMyne. She gives insight into the market’s current state.

Stablecoins were created to avoid volatility in cryptocurrency prices. These tokens are tied to the value of an asset in traditional financial markets. They can be considered safer than “fiat” currencies, real assets, gold, and other cryptocurrency. There are also “stablecoins” that are not linked to any currency, but are controlled by algorithms to maintain stable prices.

Contrary to other stablecoins, like DAI and Ether, that are backed by dollars, Terra was built on algorithmic collateral. This was responsible for maintaining parity between its price and the US dollar. This was a goal in crypto: a currency that didn’t need support from outside the blockchain network in order to function and guarantee returns.

Holders of this stablecoin are able to purchase UST at a price below $1 and then exchange it for Luna. If TerraUSD traded above $1, traders would be tempted to buy Luna and trade it for the stablecoin to then sell UST for more.

Fear in the markets following the Federal Reserve rate hike caused volatility, which negatively affected the prices of traditional cryptocurrencies like Bitcoin. This stablecoin was used as collateral because it had become more volatile.

Many UST holders sold large quantities of this cryptocurrency, as it lost its value against the dollar. Do Kwon (co-founder of TerraUSD) also failed to stabilize the market and sold his Bitcoin reserves. This further drove the price down.

Rosales explains, “This had already occurred some time ago, and parity had been quickly recovered.” This time, however, the imbalance was prolonged over time. Although Luna creators managed to maintain the $0.9 coin drop for a while, then a relentless price drop began.”

TerraUSD, the third-largest market player, lost almost 80% in a matter of hours. It was worth less than $0.30 per dollar, before recovering to $0.62. Tether, which is the most popular, dropped slightly to $0.97 on the dollar.

According to CoinMarketCap and Bloomberg, the total capitalization of the cryptocurrency market fell by more than $200 billion over the past 24 hours.

Bitcoin, the most popular cryptocurrency worldwide, dropped 11.3% to $28,000. It reached values below 27,000 times. This wiped out almost a year’s earnings, and reached the lowest level since December 2020. The historical maximum was $68,000.

This type of project is now being viewed with suspicion by the market. Tether (USDT), which is the world’s most popular stablecoin, lost its parity of $1 on Thursday amid the tsunami. This was a new day for panic in the cryptocurrency industry. The token fell as low as $0.98.

Tether, which has a market capitalization of $84 billion, is an indispensable cog in the multitude of crypto trades that take place on the market at any one time, has a market value of around $84 billion. Tether is the most traded cryptocurrency, accounting for more than twice the volume of second-place Bitcoin over the past 24 hours, which was $178 billion.

While USDT is trying to recover and reach $1 again, USDC’s stablecoin Circle USD coin (USDC), saw a slight uptrend. It traded slightly higher than one dollar for the first time in 12 months.

These are not easy days for investors. The traditional financial market is also in great turmoil after the Fed’s rate hike to try to alleviate inflation and in the midst of geopolitical tensions. This Thursday, the main Wall Street indices are trading lower again, as in the last five rounds.

Amidst this turbulence, the crypto market is torn between panic and long-term betting. However, this isn’t a bad thing. Adds Rosales, “The market is now being purged. People are studying more, protecting themselves a little more and making a crypto plan to turn to Bitcoin and Ether.” As a result, the top-performing cryptocurrencies will prevail once again.