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Cryptocurrency
TechPolicy

Luna collapse used by Chinese state media to justify cryptocurrency ban following ‘bloodbath’ for investors

  • Economic Daily said Luna’s plummeting value to less than 1 US cent ‘proves the timely and effective action of our country’s regulators’
  • Luna has been a hot topic on Chinese social media after its stablecoin sibling TerraUSD lost its peg to the US dollar last week and entered a death spiral

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An electronic board at a cryptocurrency exchange shows the market diving during a trading session in Seoul on May 13. The collapse of Luna and UST, from Seoul-based Terraform Labs, has wreaked havoc on the cryptocurrency market. Photo: EPA-EFE
Yaling Jiang
Chinese state media are using the collapse of Luna, which accompanied the fall of its associated stablecoin TerraUSD (UST), to justify the country’s ban of cryptocurrency trading, as topics related to the crash continued to trend on microblogging platform Weibo.

“The bloodbath of cryptocurrencies in the latest incident proves the timely and effective action of our country’s regulators,” trumpeted China’s state-run Economic Daily in a Sunday editorial.

Luna, from Seoul-based Terraform Labs, has dominated crypto-related news for the past week after its stablecoin sibling UST fell well below US$1 and halted trading on May 12, with its current value hovering around 15 US cents. UST is an algorithmic stablecoin that used Luna as a counterweight to maintain a peg to the US dollar, but since its collapse, Luna has also plummeted and is now worth less than 1 US cent.

With wild price volatility in traditional cryptocurrencies like bitcoin, stablecoins are supposed to be relatively safe assets. They are typically backed up by a stable asset like US dollars or gold, but algorithmic stablecoins like UST aim to use more clever methods of maintaining the peg without having to maintain those reserves.

With the collapse of Luna and UST, other cryptocurrency prices have also dived, giving Beijing a fresh reason to warn the public of the dangers of such assets since issuing a ban on trading them last year over concerns of financial stability.

“Once called ‘digital gold’ and ‘risk-averse assets’ by crypto professionals, [cryptocurrencies] are giving evidence through their own actions of being high risk and a ‘big bubble’,” read the Economic Daily editorial, which was widely republished by other state media.

The past week also shows that cryptocurrency prices can be easily manipulated, the article added, without anything of real value to support them.

Despite related news trending on Weibo for days, as it has on Twitter, the social traffic from related hashtags had been largely restricted by Monday, with view counts in the tens of thousands.
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