An already very negative cryptocurrency market was further impacted by the collapse of Terra’s algorithmic stablecoin luna and its sister currency Terra. Citi reports that investor interest and activity seem to have slowed down. According to Citi, trading volumes have returned back to normal and active wallet addresses are now at their previous levels. Google searches on Ethereum and Bitcoin have also resumed a six-month slowdown following the Terra collapse. Citi researcher Alex Saunders, a Citi strategist said that user adoption rates were a critical input for our models to project bitcoin. We saw an increase in trading volume and active addresses around the Luna fall. These gains haven’t stuck, and they have fallen back to (or lower) their old levels. Our price projections will decline if adoption remains low. Investors are also concerned by outflows to Tether’s USDT stablecoin. Some flows went to the “more transparent and centralized” stablecoin, USDC — which is issued by Circle — while others exited altogether. A big fall in the price of bitcoin was preceded by large outflows from USDT. In dollar terms, the Terra collapse also caused a drop in total value locked (TVL), in decentralized finance protocol. TVL refers to the total value of all funds that have been deposited into a decentralized finance protocol such as Anchor. This was crucial in TerraUSD’s sudden popularity. TVL, measured in ether, is also considered stable by the analysts. Saunders stated that “Overall, our metrics suggest a decrease in crypto interest due to recent volatility but no wholesale capitulation.” This year, cryptocurrencies and risk assets such as stocks have suffered a severe beating. Investors weigh rising interest rates against rising inflation. Bitcoin, which is by far the biggest digital currency in terms of market cap, has fallen more than 34% since 2022.
