What Led to the Crypto Crash and What’s the Future Outlook?

The last few weeks have been the most volatile for cryptocurrencies since 2020 after a massive crash, leaving everyone looking to understand why it happened and what it means for the future outlook for cryptocurrencies.

What Led to The Crypto Crash?

The market was upset when Terra Protocol, which was reputed to be a stablecoin and expected to bring a level of stability to the cryptocurrency market, fell by a massive 99% to a low of $0.09. Terra was not the only stablecoin pegged to the US dollar that took an enormous hit, and the popular Tether coin also fell to an all-time low of $0.95. The first digital crypto, bitcoin, also declined to its lowest point in nearly a year and a half, to a value of around $26,000 on the 12th May, down from a high of around $70,000.

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Terra and its sister token Luna, the industry-leading decentralized stablecoin, plummeted by $270 billion over the course of a few days. Contrary to what the name might imply, algorithmic stablecoins are vulnerable, as they are an unsecured asset that attempts to peg to a reference asset. Some argue that algorithmic stablecoins are inherently flawed as they require measures that have been proven incredibly difficult to control. One theory is that the crash came after an attack on TerraUSD. Once Terra and Luna fell, this caused a complete market meltdown.

The latest crypto crash comes as all markets have been taking a massive hit, with numerous factors influencing the downturn, including rising inflation, increased interest rates, hikes in oil prices, and the volatile global situation. Although cryptocurrencies were created to be an asset class separate from the financial markets and unaffected by the instabilities of the stock markets, the past few weeks have shown that digital assets are not insulated from the impacts of financial markets.

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What’s the Outlook for Crypto Future Trading

Although there have been crypto crashes before, most notably in 2021 and 2017, from which they have come back stronger, this recent crypto crash has left everyone wondering what the future looks like.

Governments and lawmakers have been looking for stablecoins to be regulated for a while now, and this recent crypto crash has increased these discussions. Most recently, Janet Yellen, US Treasury Secretary, stated that this crypto stablecoin “simply illustrates that this is a rapidly growing product and that there are risks to financial stability and we need a framework that’s appropriate.” With crypto well and truly in the red, some are looking to crypto future trading, which allows traders to contract with an expiration date in the future, applying leverage in either direction. Futures trading does not require holding or creating an actual crypto wallet or physical exchange.

There is no need to panic if you have a long-term view of your crypto trading strategy. It all depends on your motivation and whether you have long-term goals. What happens next and the long-term future of crypto is still to be understood. Crypto is potentially still a valuable asset as part of a diversified portfolio.

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