NEW YORK (AP) — Meltdowns in the cryptocurrency space are common, but the latest one really touched some nerves. Novice investors took to online forums to share tales of decimated fortunes and even suicidal despair. Experienced crypto supporters, including one prominent billionaire, were left feeling humbled.
When the stablecoin TerraUSD imploded last month, an estimated $40 billion in investor funds was erased — and so far there has been little or no accountability. Stablecoins are supposed to be less vulnerable to big swings — thus the name — but Terra suffered a spectacular collapse in a matter of days.
The Terra episode publicly exposed a truth long-known in the always-online crypto community: for every digital currency with staying power, like bitcoin, there have been hundreds of failed or worthless currencies in crypto’s short history. So Terra became just the latest “sh—coin” — the term used by the community to describe coins that faded into obscurity.
Terra’s quick collapse came just as bitcoin, the most popular cryptocurrency, was in the midst of a decline that has wiped out nearly half of its value in a couple of months. The events have served as a vivid reminder that investors, both professionals and the mom and pop variety, can be rolling the dice when it comes to putting money into digital assets.
After being mostly hands-off toward crypto, it appears that Washington has had enough. On Tuesday, two senators — one Democrat and one Republican — proposed legislation that seeks to build a regulatory framework around the cryptocurrency industry; other members of Congress are considering more limited legislation.
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What’s surprising, however, is that the cryptocurrency industry is signaling its cooperation. Politicians, crypto enthusiasts, and industry lobbyists all point to last month’s collapse of Terra and its token Luna as the possible end of the libertarian experiment in crypto.
Stablecoins are typically pegged to a traditional financial instrument, like the U.S. dollar, and are supposed to the cryptocurrency equivalent of investing in a conservative money market fund. But Terra was not backed by any hard assets. Instead, its founder Do Kwon promised that Terra’s proprietary algorithm would keep the coin’s value pegged to roughly $1.00. Critics of Terra would be attacked on social media by Kwon and his so-called army of “LUNAtics”
Kwon’s promise turned out to be worthless. A massive selling event caused Terra to “break the buck” and collapse in value. Reddit boards dedicated to Terra and Luna were dominated for days by posts referencing the National Suicide Prevention Hotline.
Terra’s ascendance attracted not only retail investors but also better-known cryptocurrency experts. One notable “Lunatic” was billionaire Mike Novogratz, who tattooed his upper arm with the word Luna and a wolf howling at the moon. Novogratz told his followers that the tattoo “will be a constant reminder that venture investing requires …….