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[NEWS IN-DEPTH] Cryptocurrencies in crisis after collapse of Terra Luna Updated: 2022-05-16 17:08:05 KST

The past week has seen hundreds of billions of dollars wiped out as the prices of cryptocurrencies big and small fell sharply.
A pair of tokens that contributed to this crisis of confidence in the crypto space is Terra, a so-called "stablecoin," and its sister coin Luna that was supposed to maintain Terra's peg to the U.S. dollar.
Luna is worth basically nothing now with trillions of coins having been created based by the algorithm meant to uphold the peg.
And instead of a dollar, Terra-USD is now worth around 16 cents.
To find out more about how all this unfolded and what it means for cryptocurrencies more broadly, we are joined tonight by our frequent guest Dr. Kim Sei-wan, Professor of Economics at Ewha Womans University.

1) Let's go back to last week, when the coin Luna collapsed. It basically went to zero, and that's where it's been bouncing around for the past several days. Its sister coin Terra was supposed to be pegged to the dollar, but that peg broke. Could you help us understand what this supposed "stablecoin" is and how it works, or perhaps doesn't work?

2) There's a lot of anger among people who bought this token. Unlike bank deposits, stocks and cryptocurrencies are not insured by the government. Companies and coins can go to zero, and there's no recourse for investors. Still, some are demanding compensation. We've seen cases in the past where customers have been compensated for being "mis-sold" a financial product. Is there anything investors can do, and will any authorities take action?

3) Regulation is widely thought to help the cryptospace go mainstream. There are a few Bitcoin futures ETFs out there now that can be bought in normal brokerage accounts. But most crypto investors are still at the mercy of exchanges, which, as Coinbase warned last week, would leave investors low on the list of creditors. What steps do you see being taken to regulate crypto?

4) How does the collapse of Luna affect the broader cryptocurrency market? The price of Bitcoin has fallen now to where it was last summer.

5) Many have pointed out that the price action on Bitcoin and some of the other major coins like Ethereum have looked more like tech stocks lately. Do you see that being the case, and if so why would that be?

6) The Federal Reserve is expected to raise interest rates several more times this year, possibly by as much as 75 basis points in one go. As this quantitative tightening goes ahead, what do you think is the likely effect on risky assets like crypto?

7) Investors are always advised to understand the risks of the financial products they buy. A general question how should investors think about the difference between stocks and mutual funds and crypto perhaps the different ways we determine their value?

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