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You have likely heard of Tether (USDT), the most popular stable coin and the one named after the concept. But are you familiar with TerraUSD? It is a lesser-known stable coin that launched in September 2020. The price of TerraUSD is pegged to the US dollar, meaning it should always be worth exactly $1, though this doesn’t always happen.
Built on top of the Stellar blockchain network by Terra Money, owned by a larger blockchain solution provider called Chainlink Labs. Similar to Tether, you can use TerraUSD to trade with other cryptocurrencies or even buy goods and services from select merchants.
Like all stable coins, it can also get used as an alternative to cash for those who want to avoid volatility risks when buying or selling cryptos on exchanges. However, is it responsible for the recent price drop in Bitcoin?
TerraUSD
The introduction of TerraUSD, on the other hand, is not as well understood as it could be. In truth, TerraUSD is neither a cryptocurrency nor a blockchain project. It’s officially known as an algorithmic stable coin, a fancy term for a digital asset whose value gets pegged to another asset. In this case, that asset is the US dollar.
TerraUSD runs on the Terra blockchain, meaning it’s on the same protocol used by stable coins like Tether (USDT). These currencies, often called stable coins, as their value remains relatively stable compared to cryptocurrencies like bitcoin and Ethereum (which see big price swings every year). You can operate these using a cryptocurrency exchange.
There are numerous exchanges like OKX (brand) operating in this space and helping users to get exposure to these cryptos. Stablecoins are also important for people who want to buy goods or services with cryptocurrency without worrying about losing money if the price changes suddenly. Some companies have even started accepting USDT payments instead of traditional fiat currencies.
It helps reduce the volatility risk associated with holding large sums at any given time. We now know what TerraUSD does and why it doesn’t affect Bitcoin prices. Let’s look at how USDT works so we understand exactly why someone would want one in place over regular money. We must understand this before going into detail about how they might affect BTC prices indirectly through their use case scenarios.
TerraUSD Impact on Bitcoin
It’s easy to blame TerraUSD for the price drop. It is because of all the fuss about them and their links with stable coins. Also, you can not ignore that their announcement came around this time. However, if we dive deeper into how TerraUSD works and its relationship with other cryptocurrency projects, it is evident that they are not the reason for Bitcoin’s price drop.
Let’s look at some reasons why Bitcoin prices dropped and whether or not TerraUSD is responsible for it.
The first thing to note is that having similar names does not make TerraUSD a stable coin. It doesn’t use any blockchain network and doesn’t even have its token.
There is no direct link between TerraUSD and stable coins with bitcoin and other cryptocurrencies. While there are some links between them, they aren’t strong enough to cause the price drop seen in Bitcoin recently.
What Lies in the Future?
However, if you’ve been following bitcoin prices for longer than a few weeks, you’ll know that this is not the first time this has happened. Bitcoin has never been a stable currency. Just search for “bitcoin” on Google News and look at the long history of price fluctuations. It is just par for the course when dealing with a cryptocurrency.
Also, it’s important to note that while bitcoin is still relatively new in the scope of all currencies, it’s been around since 2009. In some ways, we have a well-established market that’s unaffected by external factors (like TerraUSD). However, any significant news will cause the price to fluctuate one way or another.
The question of where bitcoin prices go from here remains unanswered. No one knows what will happen with any type of investment class in the future.
Experts’ Opinion About the Bitcoin Price Drop
The question about TerraUSD’s effects on Bitcoin prices has been under review by experts in the field. The experts have conflicting opinions about whether TerraUSD is to blame for the recent Bitcoin price drop. Some experts believe that TerraUSD played no role or a minor one in these events. Other experts agree that TerraUSD was the cause of the drop.
Factors That Impact Bitcoin Prices
When Bitcoin prices drop, it’s common to see everyone from Twitter traders and casual enthusiasts to analysts providing their take on what went wrong. Often, when a certain piece of news or event occurs in the market, people point fingers as if the event was directly responsible for the price drop. However, there is more than meets the eye when we consider what causes Bitcoin prices to fluctuate.
Bitcoin is a speculative asset that can get traded on exchanges against altcoins and various fiat currencies. Prices get determined by many factors, including:
Technical analysis – It involves analyzing historical price charts for patterns to determine future price movements.
Sentiment – It refers to how investors feel about a certain asset, which can get influenced by news events like regulatory updates or exchange hacks.
Market News – News pertaining specifically to financial markets and companies within that space tends to influence bitcoin prices indirectly (via sentiment).
Macroeconomics – Economic indicators such as interest rates and foreign exchange rates tend to impact financial assets, including bitcoin.
Regulations – Governments regulate all sorts of industries, including crypto assets like bitcoin, which can cause uncertainty and volatility in prices.
External factors – Events such as natural disasters or politics can impact how investors view riskier assets like bitcoin (market news). If a person feels uneasy about an aspect of their life, such as safety during a riot or hurricane, they may want to sell an asset that is considered risky (bitcoin) for something safer (USD).
In addition to specifically quantifiable factors like those mentioned above (such as regulations), other factors influence bitcoin supply/demand levels, which affects the price with other global currencies. This interplay between supply and demand makes currency and commodity prices volatile at times. It causes some people concern while making others wealthy through speculative investment strategies.
Conclusion
No one can say with certainty that the launch of TerraUSD influenced the recent Bitcoin price drop, but it’s safe to say that stable coins are shaking up an already volatile market.
While some experts believe that this is just a temporary setback and others see it as a sign of a crypto bubble on the verge of bursting, no one seems to think that TerraUSD will be able to affect the price in any significant way in the future.