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What Happens After the LUNA Crypto Crash

When UST and LUNA crashed last week after failing to hold up to their name, the crypto contagion did not last long. After briefly falling, Bitcoin recovered back to the $30,000 range. Nasdaq’s 3% daily rally in two out of three sessions (May 13 and May 17) helped. Rising hope for crypto markets will matter more.

terraUSD (UST) failed to live up to its stablecoin name when it did not stay at $1. When that broke, it lost nearly all value. UST traded at $0.13 recently and has a $1.47 billion market capitalization. Luna Foundation Guard (LFG), which is a non-profit set up by Terra creator Do Kwon, spent nearly all of its bitcoin reserve to support UST. As CNBC reported on May 16, it spent almost $3 billion on bitcoin. It has only 313 bitcoins left in its reserve.

LFG will have trouble supporting UST further. Holders lost billions.

Impact on Cryptocurrency Platforms

Expect the uncertainties ahead to hurt cryptocurrency transactions. Already, Coinbase (COIN) and Voyager Digital, which run crypto platforms, both expect trading volumes to fall. Voyager already ended its promotional programs that lose money. It plans to cut costs to adjust for weaker conditions ahead.

Prices for Bitcoin have a good chance of trading in a range or rising slightly. When crypto investors seek relative safety, they will pick Bitcoin first.