Why cryptocurrencies crashed – and what happens next

Why cryptocurrencies crashed – and what happens next

More than $300bn (£246bn) has been wiped off the total value of all cryptocurrencies in circulation in the last week as investors panic over the collapse of two of the biggest crypto tokens , while regulators are increasingly monitoring the market, which was worth almost $3 trillion at its peak. What is going on? This week’s cryptocurrency market meltdown primarily concerns two interlinked cryptocurrencies: Terra, or UST, and Luna . UST is a so-called algorithmic stablecoin. A stablecoin, unlike a cryptocurrency such as Bitcoin that fluctuates wildly, is supposed to have a set value, in this case $1. The algorithmic part is where it gets more complicated. While most stablecoins are backed by currency reserves, similar to the way that money in a bank account is backed by savings, algorithmic stablecoins are supposedly propped up by complicated trading protocols. That brings us to the second cryptocurrency, Luna. Luna’s price does fluctuate, but the software behind Terra stipulates that at any time, one coin can be exchanged for one dollar’s worth of Luna. If Luna is worth 10 cents, UST can always be traded for 10 Luna. If Luna is worth $100, UST can be traded for one hundredth of a