Everything You Need to Know About the Crypto Selloff

On the blockchain, there is never a moment that lacks excitement. This week, this is what you absolutely must be aware of:

The price of bitcoin reached a new low for 2022. Meanwhile, a problematic "algorithmic stablecoin" heightened market participants' worries of a selloff. We'll give you a rundown of everything.

The number of states in the United States that recognize cryptocurrency is growing. Several states, including Virginia, Oklahoma, and Texas, are making progress toward web3 compliance.

A look back at the week in numbers The amount of websites that are capable of rapidly enabling DOGE payments, in addition to other important statistics to know this week

STABLE STAKES

The crypto world is captivated by a faltering "algorithmic stablecoin," which has caused the markets to fall to their lowest levels since 2022.

Since the beginning of the year, the financial world has been rocked by unprecedented levels of inflation, a tangled global supply chain, the ongoing conflict in Ukraine, and rising interest rates, the most recent of which was implemented this week by the Federal Reserve in the form of their most aggressive rate increase in twenty years. As a direct result of this, the values of cryptocurrencies and stocks reached new lows for 2022. But for cryptocurrencies in particular, this week presented a peculiar new turn of events: the troubles of a dollar-pegged stablecoin named TerraUSD (UST). TerraUSD (UST) had only just become the third-largest stablecoin by market valuation, and it had 18 billion dollars worth of circulation. In recent days, the value of UST has dropped below one dollar, reaching a low of 62 cents on Monday night. This has caused many people to question whether or not it will continue to exist. Hold on tight because we are going to dissect this (very difficult) story.

• Stablecoins are supposed to maintain their value within a fraction of a percent, in contrast to the notoriously volatile nature of cryptocurrency. Unlike a more traditional stablecoin such as USDC, which is backed by dollar-denominated assets kept in separate accounts with U.S.-regulated financial institutions, UST is backed by another cryptocurrency known as LUNA (holders of UST are supposed to be able to exchange each UST for the equivalent value in LUNA of one dollar). The circulation of UST and LUNA is dynamically managed by an algorithm that is supposed to function like that of a central bank. This is done to maintain the price of UST at its current level of one dollar.

• If all goes according to plan, every time a UST is exchanged for LUNA, the UST will be burnt (or taken out of circulation), and vice versa. Here's how it's intended to work: If the value of UST goes below one dollar, holders of UST have an incentive to earn a profit by exchanging their UST for one dollar's worth of LUNA; however, this results in a reduction in the available supply of UST until the value of UST reaches one dollar once again. The decentralized lending technology Anchor, which is based on the Terra blockchain and recently provided interest rates of about 20% for UST deposits, is another instrument that Terra employs to help increase UST (raising concerns among some critics that such yields were unsustainable).

• It is not quite apparent why the UST decoupled itself from the dollar in the first place. However, on Saturday, hundreds of millions of dollars' worth of UST and LUNA were quickly sold across exchanges, which caused the price of UST to drop to about 98 cents. Despite the fact that the price of UST recovered within hours, the problems with the stablecoin were only getting started. As the fear spread and more holders attempted to get out of their positions, it was claimed that some of them discovered they were unable to exchange their UST for the promised $1 in LUNA. Binance has also temporarily blocked the withdrawals of both UST and LUNA, citing "excessive volume" as the reason. By Tuesday, the price of LUNA, which just five weeks earlier was trading at more than $115, had dropped to less than $25.

• How have Bitcoin's challenges been affected by Terra's predicament? Do Kwon, the founder of the Terra Luna ecosystem, has contributed approximately $3.5 billion worth of Bitcoin (BTC) to help back the stablecoin over the course of the past few months by purchasing Bitcoins through a nonprofit organization known as the Luna Foundation Guard (LFG), with an additional $1.5 billion being added just last week. According to a story in The Wall Street Journal, experts think that investors sold BTC over the weekend out of fear that LFG could begin to divest and flood the market, contributing to the 10% drop in price that BTC saw on Monday.

Why it is significant. Even though the future of the Terra environment is still a mystery — the price of UST lingered at 90 cents for most of Tuesday before falling back to 70 cents — the ecosystem's troubles serve as a useful reminder that there is no such thing as yield without risk. In a frothy bull market, it may seem as if there is no other direction to go except up, and in a falling market, it may be tempting to give up all of your holdings out of fear. Because of this, we felt the need to compile a manual for handling situations such as these, which includes helpful tactics such as dollar-cost averaging. Just take a few slow, deep breaths and give it a read if you're feeling a little (or a lot!) on the edge of your seat:

STATE OF AFFAIRS

Across the United States, state governments are taking steps toward adopting crypto.

A number of states and towns (look out, Miami!) are making their own web3 moves, from mining in Fort Worth, Texas to produce farming in Virginia, with various presidential orders, laws, and crypto industry studies. This is occurring while cryptocurrency regulation is still a sluggish and patchwork effort among multiple acronymed federal agencies and Congress. Who is taking the initiative here? Let's have a peek. 

• This past week, Governor Gavin Newsom of California issued an executive order with the intention of encouraging "responsible innovation" for web3 firms. regulating employment growth while maintaining a healthy balance. Among the highest priorities of the order is the creation of a "consistent business environment" for crypto tech companies (the industry has long resisted a lack of clarity), the investigation of how blockchain technology can be incorporated into state operations, and the education of residents of California, the most populous state in the United States, on how to prepare for jobs in the expanding industry.

• In a bid to entice mining companies to locate in Oklahoma, state legislators moved forward with a plan that would provide bitcoin miners with tax incentives of up to $5 million last month. For the next fifteen years, the proposed legislation in Oklahoma would exclude commercial mining operations from paying taxes on essential business expenses such as energy and machinery. A further provision of the bill would recognize bitcoin mining as a "industrial activity" that is eligible for the tax benefits of "historical types of manufacturing" in order to "promote the... growth of activities in this state rather than in rival states." In the meanwhile, Illinois and Georgia are considering doing something along the same lines.

• Recently, Fort Worth became the first city in the world to begin mining bitcoin in the state of Texas. because the city council gave its unanimous approval to an experimental initiative that would use three mines that the Texas Blockchain Council has generously provided, each worth $600. The miners, which will operate in a climate-controlled area inside Fort Worth's City Hall, will add BTC to the city's balance sheet for the very first time. The mines will work twenty-four hours a day, every day.

• On the other hand, legislators in New York are contemplating imposing a mining ban that would last for two years and prohibit mining companies that rely on energy sources that are not sustainable from renewing their operating licences. If the law is approved, New York, which is home to approximately 10% of the mining power for Bitcoin in the United States, would become the first state to prohibit the infrastructure for blockchain technology. Others in the state, notably Coinbase, point to the thousands of jobs that would be lost if the measure were to become law. Some residents of the state believe that curbing energy-intensive proof-of-work mining would help the state meet its climate objectives. (For more information on how mining affects the environment, see our previous post.)

Why it is significant. The adoption of cryptocurrencies is driven by various institutional actors beyond just banks and investment managers. It is becoming more likely that state and municipal governments will embrace crypto-related commercial possibilities, including those in mining, blockchain technology, and even DeFi. And there are even others who are trying their hand at it themselves. In addition to the percentage of its pension funds that have previously been invested in cryptocurrencies, Fairfax County in Virginia is investigating the DeFi "degen" technique that is also known as yield farming. "We regard this as a growth investment," says Katherine Molnar, the chief investment officer of the Fairfax County Police Officers Retirement System.

NUMBERS TO KNOW 455 million

Total number of websites that WordPress powers; owing to a recently developed plugin known as Easy Dogecoin Gateway, all of these websites now have the potential to allow payment processing using Dogecoin.

$265,500

Amount (90.5 ETH) that Bored Ape parent firm Yuga Labs refunded NFT bidders after they paid high network fees for unsuccessful transactions during a frenetic bidding battle for virtual real estate in an upcoming metaverse game called Otherside.

244

There was a record number of venture capital investment transactions for cryptocurrency firms in April. The monthly total of $4 billion was comprised of an increase of $400 million contributed by USDC issuer Circle and an increase of $150 million contributed by Sky Mavis, the company that is behind Axie Infinity.

TUNE IN

How Vietnam turned to become a center for crypto gaming on a worldwide scale

The innovative play-to-earn crypto game, Axie Infinity, was created by a corporation with its headquarters in Vietnam, despite the fact that it is located in its own unique part of the metaverse. Why is the nation such a hotspot for the adoption of cryptocurrencies and gaming on blockchains? Ancient8 is Vietnam's biggest blockchain gaming guild, and in the most recent edition of Around the Block, presenter Justin Mart chats with its creator, Howard Xu, about the future of "GameFi" and why Vietnam is particularly prepared to lead the next phase of crypto gaming.

That's all for today, see ya tomorrow! If you want more, be sure to follow our Twitter (@croxroadnews)

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.