Terra crash ‘our George Soros moment: crypto platform boss
The crash of the Terra coin is our Black Wednesday, says BTC Markets boss Caroline Bowers.
Caroline Bowers, the chief executive of one of the country’s largest cryptocurrency exchanges, BTC Markets, says the collapse of the Terra coin – which had a total value of $26bn – is similar to the Black Wednesday crisis.
The sharp fall in Terra, an algorithmic stablecoin using smart contracts and code to peg its value to the US dollar, has forced several platforms including the popular Swyftx to implement a halt on trading the currency.
The fall in Terra’s value, which sank 99 per cent over a 24-hour period, has had wider repercussions for cryptocurrencies including the more popular bitcoin.
That came after Luna Foundation Guard, a non-profit organisation which acts as a defacto central bank for the currency also known as UST, sold more than $1.7bn in bitcoin in an attempt to stabilise the currency.
The steep loss of value was enough to bring unnerve US regulators. On Tuesday, Treasury secretary Janet Yellen said it “simply illustrates that this is a rapidly growing product and there are rapidly growing risks.”
Some in the market have speculated that a trader with at least $1bn in UST engaged in a mass sell-off which saw TerraUSD removed from its peg, sparking a further sell off from investors.
BTC’s Ms Bowers said: “Effectively what happened was short selling to destabilise the stablecoin … that was linked to the project.
“Those who are familiar with George Soros who, in 1992, combined with investment banks to short sell and put pressure on the British pound causing what became known as Black Wednesday,” Ms Bowers said.
“What’s happened over the course of the last 72 hours is something similar where people external to the project have gathered together to find a vulnerability in the project and brought about its collapse to their own profits.”
As much as $5bn worth of UST was withdrawn from a decentralised bank known as Anchor Protocol – which has for the best part of a year offered investors a 20 per cent return for depositing UST.
While BTC Markets traders have taken advantage of the dip linked to the crash, buying up Bitcoin and Ethereum, many platforms will respond to the situation by halting the trading of Terra and TerrraUSD – a related token.
In a statement, Swyftx on Friday said: “While trading is halted, Terra and TerraUSD will still appear in your balance, but they will be unavailable to buy, sell, withdraw or deposit.”
Josh Reyes, chief executive of Minke, a digital wallet provider, said there had been significant speculation about what had caused the collapse of Terra.
“Luna didn’t really explain how any of its returns were generated and their consumers didn’t really know either,” he said.
Asked what will happen next, Mr Reyes said he expects chaos.
“I’m sure there will be lawsuits and I’m sure there will be some very sad stories,” he said. “You might even see lay-offs in some crypto companies and probably even in some start-ups.”
Australian cryptocurrency investment fund Apollo Capital on Friday disclosed that the collapse of the Terra and related token had caused a loss of some five per cent in both its long funds and nine per cent in the market neutral funds holding UST.
“The events over the last three day can be likened to a ‘black swan’ event,” said Apollo’s chief investment officer Henrik Andersson. “Over the past 12 months, the Terra ecosystem has developed into a thriving DeFi ecosystem with significant backing from some of the most reputable institutions and investors in the crypto asset industry.
“The Apollo team has reacted by successfully selling the majority of any UST positions at 80c. While this realises a 20 per cent loss on these positions, it has proven to be a prudent trade as UST now trades closer to 0.”
Chainalysis chief executive Michael Gronager described the events in the cryptocurrency market this week as the result of being actively traded against. “In a bull market, that’s when you see a lot of growth and execution. As long as you know what to do, the bear market is actually where everything gets built,” he said.
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