Chainalysis claims UST collapse was not the main factor for Bitcoin’s crash as we saw that last month the market was linked to the broader tech market decline so let’s read more today in our latest altcoin news.

The blockchain analytics platform chainalysis claims the UST collapse was not the main reason for the market downturn, concluding that it will be a factor in the recent market crash, but it was not the deciding factor. The report read:

“The crypto market’s recent downturn appears more closely linked to the tech market decline than to UST’s collapse.”

Why are #crypto prices plummeting? Did the UST-Luna situation cause this? What’s an algorithmic stablecoin?

Our experts break down the recent events in the market and share key takeaways. https://t.co/yojWjVnSRn

— Chainalysis (@chainalysis) June 9, 2022

According to Chainalysis, the BTC correlation with tech stocks is a new development with the leading crypto maintaining a huge price correlation with the NASDAQ 100 Tech Sector Index and the S&P 500 index in 2022 as it fell in tandem with them. UST’s crash didn’t bring the BTC downtrend but the effect was short-lived and the end of the accelerated the drop that coincided with the UST collapse. After this, Bitcoin’s price action dropped back in line with other non-crypto tech assets. The crash caused a surge in redemptions of stablecoins with the data from the exchange showing a surge in stablecoin trading volume between May 9 and May 12. Chainalysis wrote:

“All kinds of investors sold their stablecoins during the crash, from big, institutional players to retail investors.”

Terraform Labs is the organization behind Terra and it announced the withdrawal of $150 million from the Curve Liquditiy pool. Shortly after the withdrawal, two users swapped $185 million UST for the USDC in a span of two hours and attacked the pool with less liquidity. TFL withdrew another 100 million UST from the pools in order to try and rebalance it.

So if the price of UST dropped below a dollar, the investors can burn 1 UST for $1 worth of LUNA and remove it from the supply so the newly minted coins can be sold with the investor pocketing the difference as a profit. If the price goes above a dollar, the investors can burn $1 worth of LUNA for 1 UST and with the coin trading lower than the dollar, investors can sell the newly minted UST for a profit. The supply-demand ratio crashed when UST lost its peg and opened up huge arbitrage opportunities. The users bought less valued UST from exchanges and burned $1 worth of LUNA so as a result, the coin was minted en masse and resulted in hyperinflation in the supply, sending the token price crashing by 100% in less than a week.

Terra’s collapse drew attention from regulators around the world and both the US SEC and the South Korean prosecutors opened up investigations about the crash.