Pengpai News Reporter Hou JiachengIn the face of many uncertain factors in the global financial market recently, the price of Bitcoin has also undergone a significant adjustment.On May 10th, according to CoinDesk data, Bitcoin briefly fell below the $30000 mark during the day, a decrease of 10%
Pengpai News Reporter Hou Jiacheng
In the face of many uncertain factors in the global financial market recently, the price of Bitcoin has also undergone a significant adjustment.
On May 10th, according to CoinDesk data, Bitcoin briefly fell below the $30000 mark during the day, a decrease of 10%.
A Bitcoin investor told Pengpai News that Bitcoin's recent decline is mainly due to the US interest rate hikes and scale reductions. Due to some traditional financial institutions entering the Bitcoin market in the past two years, Bitcoin is just a configurable asset for them. So when the global financial market is not doing well, these funds will sell Bitcoin, causing the Bitcoin market to follow the current trend of the US stock market.
The investor also stated that a relatively large US dollar algorithm stable currency, UST, has recently encountered a decoupling crisis in the blockchain market. Due to its large size and being the third largest stable currency, the temporary decoupling of UST may raise concerns in the blockchain market. At the same time, UST's project team has stockpiled billions of dollars of Bitcoin as reserves, and the market is also concerned that it will sell Bitcoin to maintain UST's stability, which has also exacerbated market concerns about the trend of Bitcoin.
Gu Yanxi, a researcher in the blockchain and encrypted digital asset industry, also told Pengpai News that Bitcoin trading is highly correlated with the stock market. The degree of correlation reaches 90%. In the context of a sharp drop in the stock market, the decline of Bitcoin is also normal. In addition, the significant decline in UST and LUNA has led to its foundation selling a large amount of its Bitcoin holdings, resulting in a significant drop in Bitcoin prices.
What is Algorithm Stable Coin?
Due to the high volatility of cryptocurrencies, the industry hopes to anchor fiat currencies through stable currencies.
The above-mentioned investors stated that the common stable currencies currently available include: mortgage based stable currencies that rely on traditional assets as reserves (mainly USDT and USDC) and digital asset backed stable currencies (mainly DAI). The problem with the former is that it is not decentralized enough. For example, in the event of war, if the United States wants to freeze stable currency, it can be achieved through issuing companies. The problem with stable currency in the latter is the low efficiency of asset utilization; To issue a stable currency of $1, it is necessary to use assets much larger than $1 as collateral.
Based on the issues and pain points of various reserve stable currencies mentioned above. The investor stated that the industry is attempting to use algorithms to stabilize currency values while also improving capital efficiency.
UST is a relatively new implementation method for algorithmic stable currency, and it is also the largest algorithmic stable currency by far. "The investor said that the UST project party issues two types of currency: the stable currency UST and the 1 dollar anchor. The second is the project token, which can fluctuate up and down, called LUNA.
The way to achieve stability of UST is: when UST is greater than $1, users can use LUNA worth $1 to cast 1UST, and then destroy LUNA. When the UST is less than $1, users can destroy $1 and redeem $1 of LUNA. UST attempts to stabilize around $1 through this arbitrage mechanism.
What kind of decoupling crisis is UST facing?
The investor stated that previously, the project team of UST provided a large amount of deposit subsidies in order to increase its usage, with interest on UST deposits reaching around 20%. However, the psychological pressure of the death cycle of LUNA redemption and selling has always been there, so UST's project team has also purchased billions of dollars of Bitcoin as UST's value reserve.
The crisis with UST this time is that the high interest subsidy provided by the government is almost running out and can be used up for another month. Then, many funds began to withdraw from UST early and sell UST in the market. After the UST fell below $1, LUNA's market confidence and prices began to be affected. Therefore, LUNA has recently fallen significantly. LUNA's decline, in turn, has affected UST's market confidence, and thus a dead cycle. "The investor said.
Data source: CoinMarketCap
According to CoinMarketCap data, the stable currency UST fell from around $1 to $0.68 during the day, marking the largest decline in history.
Editor in charge: Zheng Jingxin Image editor: Chen Feiyan
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