Cryptoverse: Will Bitcoin become a reserve currency?

The announcement by the Crypto platform that it plans to buy $10 billion in Bitcoin to support its “stablecoin” has sparked a response in the market. As part of a broader effort to elevate Bitcoin to the status of global reserve currency. Publicly available blockchain data shows Terraform Labs has amassed nearly 40,000 Bitcoin worth $1.7 billion (€1.5 billion) through a non-profit affiliate, Luna Foundation Guard.

When Do Kwon, the co-founder of Terraform, announced a few months ago that the project would buy $10 billion in Bitcoin reserves to underpin TerraUSD, he was breaking ranks with other large stablecoins, which aim to minimize wild price swings and are typically backed by US dollar reserves. Following this announcement, Terraform went on a spending spree.

Are there any downsides?

As Bitcoin and stablecoins like TerraUSD get closer, another group of investors has warned that the crypto markets could face a new threat that could lead to a “doomsday spiral” for investors. Regardless of the outcome, the show is guaranteed to be entertaining. Even in the short term, there are risks. BCB Group’s OTC trading head Richard Usher believes that some investors may be trying to get ahead of the buying, which could lead to an inflated drop if the price starts to retrace its steps.

Vetle Lunde, an analyst for Arcane Research, estimates that Terra will need between 60,000 and 70,000 Bitcoins to meet its $10 billion reserve goal. At the time of writing, Tesla holds 43,200 Bitcoin, which is the second-largest holding after MicroStrategy.

Terraform Labs did not respond to a request for comment.

There has been a lot of interest in stablecoins recently. Tether is a popular stable coin that can be exchanged for Bitcoin and other cryptocurrencies with ease.

As of a year ago, Tether had a market cap of $44.5 billion (€40 billion) and TerraUSD had a market cap of $1.76 billion (USD). According to CoinMarketCap, their value has risen to $82.3 billion and $16.7 billion, an increase of 85 percent and 850 percent since then.


Is the stable coin’s value dependable?

In the past, not all algorithmic stable coins were stable, with some losing their peg and falling in value. An analyst at 21Shares claims that there is “still much work and regulatory uncertainty regarding algorithmic stablecoins and their resistance to a collapse in contractions, which might cause so-called ‘death spirals,'” he says.

There is a “vicious circle” in which the contraction of the UST (TerraUSD) leads to the minting of LUNA and its subsequent decline in price, which causes more UST redemptions, he explained, likening this to the bank run.

Traders who want to move money around or speculate on other cryptocurrencies frequently use stable coins as a medium of exchange. A new monetary era will be ushered in with the introduction of Bitcoin-backed stablecoins, which Kwon likens to the gold standard that was the backbone of global finance a century ago.

It was reported by Euronews and Reuters and updated on 12/04/2022

After a crypto platform announced that it plans to buy $10 billion worth of bitcoin as collateral for its own “stable coin,” the price of bitcoin skyrocketed. As part of a broader effort to elevate Bitcoin to the status of global reserve currency. Luna Foundation Guard, a non-profit affiliate of Terraform Labs in Seoul, has amassed nearly 40,000 Bitcoin worth $1.7 billion (€1.5 billion), according to publicly available blockchain data.

According to Do Kwon, Terraform’s co-founder, they plan to buy $10 billion worth of bitcoin reserves to underpin TerraUSD, a class of cryptocurrency that aims to minimize wild price swings and is typically supported by US dollar reserves in the stablecoin market.

Stable coins are commonly used by traders as a medium of exchange, and they speculate on other cryptocurrencies with that stable coin. To paraphrase Kwon, the gold standard, which was the foundation of global finance a century ago, will be re-established with the introduction of Bitcoin-backed stable coins.

According to some analysts, Bitcoin’s price is rising in anticipation of more acquisitions, which could lead to the cryptocurrency’s return to $48,000 (€44,000) by the end of March. To see if Terraform’s lead is followed by others may be more important.
According to Sid Powell, CEO of Sydney-based crypto lender Maple Finance, a $10 billion purchase can have a significant impact on the value of Bitcoin.

In the short term, Bitcoin was introduced as the hottest form of currency collateral backing, but in the long term, it is more about what it signals.

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