As crypto prices crash, the lawless market could be in for a regulatory reckoning

It could be contagious… Crypto markets have caught a cold — or worse. The crypto industry has lost nearly $500B this week after two top stablecoins were “unpegged” — and caused investors to panic-sell other coins. Refresher: stablecoins are cryptos whose value is (theoretically) pegged to other assets, like the USD. A recap:

• First, stablecoin TerraUSD (UST) fell to a third of its “fixed” value after its algorithm failed to rebalance its price (it’s still down).
• Then the largest stablecoin, Tether, slipped from its $1 peg, falling to $0.95 before recovering. (Tether is backed by cash, not just an algorithm.) Skittish investors have been selling off the bigger coins this week too: bitcoin’s down 22%, ether 31%, and solana 49%.

This could be a (decentralized) bubble… When an entire asset class (think: real estate, stocks) is overvalued, it’s often called a “bubble” — and if prices later crash, the bubble bursts. Some experts say crypto’s sell-off is starting to resemble the dot-com bubble that led to the 2000 tech crash, or the housing bubble that led to the Great Recession (2007-09). In both cases, a sharp panic-fueled sell-off followed years of soaring speculative prices. (Worth noting: both those crashes wiped out trillions in wealth, much more than the crypto sell-off has.)