Legislators Mull Their Crypto Winter Response
As the market continues to struggle, with Bitcoin trading below $30,000 press-time and most of the altcoins showing a subpar performance, the response of different actors varies.
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While Charles Hoskinson, the founder of Cardano and co-founder of Ethereum, has noted that the current bear market is nothing different from the previous ones comparing it to a “cold ice bath” saying “we are in the panicked blood in the street phase”, others are not as convinced that the future looks glossy.
Legislators in both the U.S. and Europe are once again eyeing rules that regulate and supervise stablecoins, many of which are pegged to the US Dollar.
In the focus is TerraUSD (UST) and its sister governance token Luna that crashed in the past week. Claiming to be “algorithmic” and relying on financial engineering to keep the link to the greenback, its price fell from $1 to $0.09498, with Coinmarketcap reporting that “The Terra blockchain has officially halted and UST has remained de-pegged from the US dollar since 9th May 2022.”
Meanwhile, Terra Luna effectively lost all of its value and is now trading at $0.0001523.
Just a month ago its price was hovering at $119.
The final slump happened after Luna Foundation Guard, the second largest known holder of Bitcoin, liquidated almost its entire reserves last week worth billions in a failed attempt to defend the Terra UST stable coin peg. Of the 80,394 Bitcoin worth $2.4 billion it held as of May 7th just a day before Terra had been unpegged from the USD, only 313 are still available.
The rest were liquidated between May 8th and May 10th, when Bitcoin traded between $31,000 and $35,000, leaving many investors broke. Ethereum co-founder Vitalik Buterin suggested prioritizing helping “smaller wallets,” or people who had “a couple thousand or more of UST deposited in Anchor,” rather than “rich whales.”
The crypto community’s response to the failure was predictably negative, with some users noting “$UST This is what a Market unregulated is, full stop. I lost a lot too but I am glad I realized no more this sh#t. Are u happy now all crypto lovers without any market rules? Well now take this loss and deceive and SHUT the fffff up!”
In this chaos, Tether’s (USDT) price also lowered to 95 cents before bouncing back.
Because of this volatility and huge losses among the regular investors, BTC critics are already speculating about the measures necessary to address the market vulnerabilities.
Industry leaders fear that well-known crypto skeptics such as Senator Elizabeth Warren and Securities and Exchange Commission Chair Gary Gensler will double down their efforts to cripple the crypto-verse.
Gensler has already expressed his concern about the market, calling out crypto exchanges for offering multiple services that are often in conflict with one another, such as custody, market-making, and trading. He also floats that most cryptocurrencies constitute securities as the administration looks to regulate digital assets.
Meanwhile, in Europe, Czech liberal Ondřej Kovařík of the Renew Europe European Parliament group warned against hasty decisions on how to regulate the market, referencing the EU’s market in crypto assets bill, dubbed Digital finance: Markets in Crypto-assets (MiCA), which could be in place by the end of 2023.
The final text is slated to be reviewed on Wednesday.
Other members of the European Parliament, like Spanish Green Ernest Urtasun, compare the crypto market to the subprime mortgage market, which triggered the 2008 financial meltdown.
We expect a similar sense of urgency that we have seen in recent statements by top [European Central Bank] executives calling for an end of the de-regulated crypto Wild West,
he said.
To remind, the European Central Bank has offered to tax crypto assets, especially if they have a high carbon footprint.
Commenting on TerraUSD’s crash, German conservative Stefan Berger of the European People’s Party, who is less wary of the current crash, has called on the legislators to be wary of kneejerk reactions.
According to him, the slump was a wake-up call, yet this is not “to say that all stablecoins are problematic,” said Berger, adding that “legislators should take a closer look at their design in the future before authorizing them. MiCA is an important step here.”
While the regulators are yet to decide on how to tackle the aftermath of the crypto plunge, others are already feeling bullish about the market. Among them is the well-known bull Michael Saylor who believes that there is an explanation why the collapse of UST and LUNA happened, reiterating his support for Bitcoin, tweeting that
Following the UST/LUNA collapse, @LynAldenContactoffers an excellent primer on the differences between #bitcoin. & #Crypto as well as the risks inherent to tokens that aspire to advanced functionality & performance via PoS and active project management. https://lynalden.com/digital-alchemy/
Even among the cryptocommunity the sentiment continues to be good, with some underscoring that “there is a lot of positive news about $LUNA and $UST, the team takes more action quickly, I still support this project.”
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