The trillion-dollar crypto market has witnessed sharp selling in the last 48 hours with investors losing billions of dollars as major currencies such as Bitcoin, Ethereum, Solana, Luna, Dogecoin, Shiba Inu crashed up to 99%. Terra blockchain's native coins LUNA and USDTerra (UST) were the worst hit, eroding almost its entire value in just 48 hours. In the last 24 hours, the price of Terra Luna declined more than 99% to hit an all-time low of $0 per dollar. It was currently trading at $0.01 apiece, down 96.2%.

In the past 48 hours, Bitcoin, the world's largest cryptocurrency, also tanked below $27,000, the lowest since December 28, 2020, while Ethereum, the second biggest crypto, dived as low as $1,800, its lowest level since July 2021. Both the currencies traded over 50% lower than their peak touched by end of last year. A similar pattern was seen across other popular digital coins like Dogecoin and Shiba Inu.

Terra LUNA, which touched an all-time high of $119.5 on April 5, 2022, wiped out its entire value in the past couple of days by nosediving 97.5% on May 12, a day after the U.S. Labor Department's monthly consumer price index (CPI) data showed that inflation rose by 0.3% to 8.3% YoY in April despite a significant drop in crude oil prices.

The continued rise in inflation bolstered the case for a sharp rate hike by the Federal Reserve despite the fact that the U.S. central bank has already raised official interest rates by 75 basis points in the last two policy meetings. The possibility of sharper interest rate hikes by the U.S. Fed soured investors’ appetite for risker assets and prompted them to shift focus to safer assets like gold and dollar.

Terra LUNA, which was one of the best-performing cryptocurrencies in early 2022, saw its market capitalisation dropping to $0.49 billion. The fall in price also resulted in a slip in its ranking, from top-15 crypto coin in early this year to 38 as of today. As per a report, Luna Guard Foundation, with a reported massive Bitcoin reserve, is trying hard to stabilise UST once again to gain investors’ confidence.

According to market experts, the recent incident of Terra blockchain coins losing its dollar peg has sent shockwaves across the crypto market as it has exposed the weakness of algorithm backed stable coins. However, experts still remain bullish on LUNA and expect the Terra blockchain token to gain momentum in future. However, they believe the instability in LUNA is likely to continue as the overall crypto market is expected to remain choppy in the coming weeks.

“During the larger liquidations due to the macro-market volatility, UST fell down to as low as $0.60 yesterday, which sparked a major sell-off in LUNA and resulted in one of the biggest price crashes in LUNA’s history. Luna Guard foundation (LGF) scrambled to support UST by liquidating large Bitcoin wallets for sustaining UST’s value. LUNA is down to $11 from its all-time high of $119.18 in April 2022, this phase of instability in LUNA will remain because the overall crypto market is expected to remain choppy in the coming weeks,” says Jennifer Lu, Cofounder at Coinstore.

Charles Tan, Chief Marketing Officer at Atato, a licensed MPC crypto custodian wallet, says the current LUNA fiasco is a great learning opportunity for the global crypto community as it has revealed the weak links within the algorithm-based stablecoin ecosystem.

“It is important to note that Terra network is one of the most tech-savvy in the crypto industry and Terra UST is a pioneer in the algo-based stablecoin race. The LUNA crisis reiterates the fact that crypto as an asset is highly volatile and investors need to trade with caution with a long-term horizon of 2-3 years to stay profitable,” adds Tan.

Commenting on the LUNA crash, Shivam Thakral, CEO, BuyUcoin says, “The destabilisation of UST led to panic selling of the heavyweights like Bitcoin and Ether which increased the overall market volatility. The recent UST crisis has revealed major loopholes in the algorithm-backed stablecoin system which will need to be addressed publicly to gain back the confidence of the investors.”

“The recovery of LUNA will depend on the corrective measures taken by the parent network/LGF which has built a large Bitcoin reserve with a series of large-scale BTC acquisitions,” he further says.

The sell-off in riskier assets like equities and cryptos have gained momentum this week after the central banks across the world, including India, the U.S., the U.K. and Australia raised key interest rates and rollback economic stimulus to contain rising inflation.

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