The cryptocurrency market has seen $1 trillion evaporating in just five weeks as the price of Bitcoin plummeted to its lowest level in 16 months with investors' panic selloff running on full throttle.
The price of Bitcoin dove below $29,000 late Wednesday, a price seen by many crypto investors as a strong support level since last July.
Its price further sank to $27,785, a more than a 7% daily loss, hitting its lowest level since Dec. 30, 2020.
Earlier Thursday, it fell further to $26,700 at 0515GMT.
This meant more than a 30% decline since last Wednesday when Bitcoin closed at $39,701, according to data compiled by Anadolu Agency.
The world's most popular and biggest cryptocurrency by market cap has lost a whopping 60% in just six months after hitting an all-time high of $69,000 in November.
The total value of the crypto market plummeted to below $1.12 trillion after 0700GMT on Thursday – a colossal $1.07 trillion loss since seeing $2.19 trillion on April 4.
Interest rate seen as culprit
Many crypto investors blame the US Federal Reserve raising interest rates last week by 50 basis points, the steepest hike since 2000, which could potentially push the US economy into recession.
Since then, the US' tech-heavy Nasdaq stock exchange dove a staggering 12%, and the crypto market has been strongly correlated to the performance of technology stocks.
American tech companies in recent weeks posted disappointing financial results for the first quarter of the year, owing to major hurdles such as rising costs due to record high inflation, softening consumer demand, chip shortages, and supply chain bottlenecks.
As for the crypto market's internal dynamics, however, the failure of a new project added fuel to the fire sale.
A stable coin called TerraUSD, or UST, initially designed by Singapore-based Terraform Labs in 2018 to be pegged to one dollar, plummeted below $0.26 on Wednesday, worsening fears among crypto investors.
Other popular stable coins use their reserve cash and various assets to manage a 1-on-1 ratio against the US dollar, in order to present stability and avoid volatility.
UST, on the other hand, uses an algorithm of burning and minting its sibling token Luna, and this enables UST to adjust its own supply and manage a price close to one dollar.
With the price of UST in free fall, more and more Luna are being burned in order to support the price of UST by the Singapore-based non-profit Luna Foundation Guard.
Luna, however, has lost over 95% of its value in just a few days, and now crypto investors are worried that the organization would dump billions worth of Bitcoin that it owns in order to support UST.
If that happens, it could pave the way for even a bigger selloff in the crypto market.