Terra was a blockchain ecosystem that supported a huge experiment in decentralised finance, and its collapse this month sent a bearish market spinning into a downward spiral. Amid a new revival plan to to start work on a totally new blockchain from Terra’s operators, investors in the rest of the DeFi world were still jittery. Adding to the concern was a hitch in the Ethereum network that was supposed to make it less energy intensive.
Senior Market Analyst at Oanda, Edward Moya, said that the bearish sentiment in the market remained unchanged. He also said that a growing number of competitors to Ethereum could make the fallout more intense as the hitch to its update, known as The Merge, remained unresolved.
Ether was down by 11 percent on Thursday, before paring losses to USD1,850, which was well below the key threshold of USD2,000. Ether needs to trade above this threshold if the bearish sentiment surrounding it is to ease. Other tokens like Polkadot, Solana and Avalanche, which are linked to protocols popular with DeFi, also slumped over the last 24 hours, down between 11 and 17 percent.
Bitcoin, the largest cryptocurrency, acted as a haven, paring losses to approximately 1 percent. However, the cryptocurrency decoupled from US equities after reflecting price changes in risk assets recently. Stocks, on the other hand, continued to bounce back from the lowest levels in more than a year.
Terra collapse leads to drop in blockspace demand
In the aftermath of Terra’s collapse, demand for blockspace on the Ethereum network has reduced considerably, and consequently the gas fees of the network are dropping. Aside from several spikes during minting events such as the Yuga Labs’ Otherside land sale, data from Glassnode showed that gas fees were in a downward trend since December last year, reaching multiyear lows in the process.
Mati Greenspan, founder of Crypto research firm Quantum Economics, said that despite reflecting a single day’s data, Solan’s NFT volume surpassing that of Ethereum was a serious blow to investor confidence in what was once the go-to base layer for the decentralized Web. He also said that since the entire crypto market was down at the moment, analysts should be wary about drawing long-term conclusions.
A potential security risk, known as the reorganisation, was experienced on the Ethereum beacon chain – which plays an integral part in its highly anticipated technical upgrade.
Head of Market Insights at Genesis Global Trading, Noelle Acheson, said that a reason for the ETH drop was the reorganisation issue, which could translate into a delay with the timing of the Merge.
Investors who were once bullish on crypto, have also cooled on its prospects, even as the Federal Reserve’s rate hike caused volatility in the market, and dulled previously popular growth and speculative assets. The fallout of Terra only worsened the situation.
Chief Investment Officer of Guggenheim Partners, Scott Minerd was quoted as saying that he expected Bitcoin to fall to USD8,000 this week. Minerd had previously predicted that the price of Bitcoin could touch USD400,000.