Why is crypto crashing? A Q&A on bitcoin, luna and other falling cryptocurrencies

The cryptocurrency market is seeing one of its worst selloffs since a market rally in 2020, sparking panic among investors and raising questions about why crypto prices have been increasingly sensitive to gyrations in the stock market. Market experts say two main factors are driving the recent slump in the cryptocurrency market: moves by the U.S. Federal Reserve to combat high inflation and stabilize markets, and the implosion of terraUSD, a type of so-called stablecoin. According to Bloomberg Intelligence, luna’s sharp value decline looked like the worst day for a financial product ever seen and it prompted cryptocurrency exchanges to delist the coin, bringing its trade to a halt as there was no liquidity in the market. Terraform Labs said on Thursday evening that it halted the blockchain behind the cryptocurrencies and will “come up with a plan to reconstitute it.” The Fed recently flagged concerns related to stablecoins in its biannual financial stability report, saying that the rapidly growing sector, which constitutes roughly 15% of the total cryptocurrency market capitalization, is vulnerable to runs and its risks could spill into traditional markets. Some cryptocurrencies, particularly market giant bitcoin, were touted as assets whose value would hold over time, which means they would be a good hedge against inflation.