Except for 'Wen Lambo?', all of your crypto crash inquiries have been answered

People began discussing another crypto winter in January, when plunging prices had wiped off $1 trillion in value since November's high point. In March, prices increased, recouping a portion of the previous decline. The value of bitcoin and other cryptocurrencies plunged by more than 60 percent from their respective all-time highs. The market's message was unambiguous: There would be no crypto winter.

why did the crash occur?

The stock market as a whole is experiencing a decline, notably in technology firms. This was already having repercussions on the crypto markets. In addition, central banks are increasing benchmark interest rates and selling assets they have bought over the past two years, causing other investors to sell riskier assets such as cryptocurrencies.

UST, an algorithmically stable coin, lost its dollar peg in early May due to this macroeconomic climate. UST was coupled with another coin, luna: Both are supported by Terraform Labs and function on the Terra blockchain. In an effort to stabilize the currencies, the non-profit Luna Foundation Guard distributed $1.5 billion in bitcoin and U.S. dollars.

It failed, but the US Treasury's rescue effort added to the selling pressure on bitcoin, which has been hovering around $30,000, significantly below its November record of over $67,000 and 30% below its price in late April.

what's the forecast for crypto investing?

David Pakman, managing partner of CoinFund, stated that the IT industry as a whole is through a reversal, and crypto is experiencing a similar trend. 'I believe there will be many more quarters of unwinding,' he said, 'regardless of whether the Fed becomes dovish.' Since the severity of the recession is still unknown, CoinFund has urged its startups for the past six months to have sufficient funds to last for at least two and a half years, he said.

Many startup board meetings have witnessed a major shift in dialogue. 'Already, the topic of discussion at board meetings has shifted from 'Maybe we should slow our hiring' to 'Should we consider reduction-in-force layoffs?' Pakman stated.

Pakman predicts that, when the dust settles, crypto will have a stronger growth potential than other industries, based on the possibility that new applications for crypto may arise even during economic downturns.

Pakman's optimism is supported by some evidence: The hash rate of the bitcoin network, a measure of the computer power used to verify and record transactions, has reached new heights despite the price decline of bitcoin.

What specifically occurred between UST and luna?

UST is an algorithmic stable coin, which means that its dollar peg is supposed to be maintained by automatic trading systems that mint or burn UST and seek to maintain its price. As the UST lost its value, these programs endeavored to create more luna. The fact that the Terra blockchain lacked the capacity to sustain the volume of transactions required to maintain the peg was not lost on traders, who took advantage of the situation and drove the price of luna even lower.

In an attempt to cope with the problem, the Terra blockchain continually shut down and restarted, but this was eventually unsuccessful. Do Kwon, co-founder of Terraform Labs, advocated transferring project control to UST and luna holders in order to continue the initiative.

The meltdown highlighted the dangers of crypto-equivalents of bank runs, particularly for stablecoins. Treasury Secretary Janet Yellen acknowledged the UST problem in a May Senate hearing, despite the fact that regulators had been warning for a long that they might cause significant financial system instability.

According to CoinMarketCap, as of the 16th of May, UST was selling at approximately $0.11, whilst luna was virtually worthless.

CEO Changpeng Zhao stated on Twitter that Binance's investment in Terraform Labs and receipt of luna tokens resulted in a theoretical loss of $1.6 billion.

What about other stable currencies?

Tether, the world's most valuable stable coin based on market capitalization, has recently fluctuated, briefly losing its peg before regaining. USDC, the second-largest stable coin, has maintained its dollar peg. In contrast to UST, both stable coins are supported by considerable reserves, mostly commercial paper and U.S. Treasurys. However, the tether coin's advocates have been criticized for not disclosing sufficient information regarding its holdings. Circle, which contributed to the formation of USDC, has pledged to publish information regarding its reserves and SEC filings; it has an agreement to go public via a SPAC merger.

What is the deal with all these DeFi hacks?

The cryptocurrency industry is burdened by an additional element. The amount of crypto stolen in the first four months of 2022, estimated by PeckShield to be $1.57 billion, has already surpassed the total amount of crypto stolen in 2021. In addition, the largest attacks of 2022 targeted systemic vulnerabilities such as cross-chain bridges, allowing for larger thefts than the social engineering attacks that dominated 2021.

In at least one instance, the crash has exacerbated the situation. Blizz Finance, an Avalanche-based liquidity protocol, announced on May 12 that its protocol has been drained by an attack including the deposit of nearly worthless luna, which exploited a price-data inconsistency. Similar attacks were made against the Venus protocol.

Are authorities about to crack down on cryptocurrencies?

Regulators, led by the SEC, CFTC, and Treasury Department, and important political figures, including as Sens. Elizabeth Warren, Pat Toomey, and Cynthia Lummis, are becoming concerned about the rapid expansion of cryptocurrencies. In March, the Biden administration released an executive order on crypto that emphasized the importance of U.S. leadership in blockchain and crypto technology while also highlighting the need to safeguard consumers, investors, and companies.

Major organizations, including as the SEC, have begun putting additional regulations on cryptocurrency firms and have even threatened legal action. However, it is anticipated that developing new crypto-related regulations and even legislation may take years.

In addition to the United States, the United Kingdom, the European Union, and other nations seek to implement stricter crypto regulations.

Is the cryptocurrency market crashing?

Even in the last big crypto winter of 2018, bitcoin fell to $5,000. Since 2009, when the first bitcoin was produced, there have been multiple market cycles for cryptocurrencies. Even some of crypto's sharpest critics have praised the blockchain technology that underpins it, despite the fact that governments are anticipated to scrutinize crypto more closely. Gary Gensler, chairman of the Securities and Exchange Commission, referred to cryptocurrencies as 'change catalysts' in the financial markets at a 2021 address. In addition, the majority of authorities and legislators have cautiously emphasized the necessity to keep opportunity for innovation while curbing crypto's speculative excesses.

OK, we'll bite. What does 'Wen Lambo' mean?

In 2013, a 4chan user paid around 217 bitcoins for a 2014 Lamborghini Gallardo. Lamborghinis, or Lambos, have now become a prestige symbol for freshly crowned crypto millionaires. Even with the recent accident, that Lambo still cost the buyer $6 million at today's prices.