The announcement by a cryptocurrency platform that it will gather $10 billion in bitcoin to back its own “stablecoin” is causing a stir in the market. It’s part of a larger effort to establish bitcoin as the new world’s reserve currency.
According to publicly available blockchain data, Seoul-based Terraform Labs has amassed about 40,000 bitcoin worth $1.7 billion through a series of acquisitions made through a non-profit affiliate, Luna Foundation Guard.
Terraform co-founder Do Kwon announced last month on Twitter that the project would purchase $10 billion in bitcoin reserves to underpin TerraUSD, breaking ranks with other large stablecoins – a burgeoning class of cryptocurrencies that aim to minimize wild price swings and are typically backed by US dollar reserves.
According to Kwon, a stablecoin backed by bitcoin reserves “will usher in a new monetary age of the Bitcoin standard,” referring to the gold standard that served as the backbone of world banking for nearly a century, reports Reuters.
The acquisitions, and the expectation of more to come, are bolstering bitcoin’s price, with several market participants citing them as a major cause of bitcoin’s return to $48,000 at the end of March. Perhaps more important is if others will follow Terraform’s lead.
“Buying $10 billion worth can change the price in the short term,” said Sid Powell, CEO of Maple Finance, a cryptocurrency lender located in Sydney. “However, over time, it is more about what it indicates – that bitcoin has been introduced as the hottest kind of collateral support for currencies.”
Other market participants, on the other hand, warned that an ever-closer embrace between bitcoin and stablecoins like TerraUSD might bring a new risk for crypto markets, raising the threat of a “death spiral” for investors down the road.
In any case, it’ll be entertaining to see.
There are also risks in the near term.
“There is a risk that some people are trying to position long ahead of the purchasing, which might magnify a collapse if the price starts to retrace,” said Richard Usher, head of OTC trading at London-based crypto business BCB Group, who credited bitcoin’s gains last month to a better risk climate.
Vetle Lunde, an analyst at Norway-based crypto research firm Arcane Research who is following the Terra project’s purchases, predicts that it might eventually store between 60,000 and 70,000 bitcoin to reach $10 billion in reserves.
That would be more than Tesla’s 43,200 bitcoin, making it the public business with the second-largest bitcoin stockpile after MicroStrategy.
Terraform Labs did not respond to a comment request.
