Terra USD Collapse Exposes Critical Flaw in Bitcoin, Peter Schiff Insists

Prominent BTC Critic Schiff Explains Why the UST Collapse Revealed a Major Flaw in Bitcoin and Crypto in General

The CEO of Euro Pacific Capital, gold bug Peter Schiff, has taken to Twitter to comment on the loud fall of Terra (LUNA) and its UST pegged to the U.S. dollar.

LUNA and UST crush strongly

Both coins plunge amid a sell-off. The stablecoin that lost its peg to the USD has fallen over 49% in the past 24 hours, trading at $0.4832.

Terra (LUNA), the initial coin of the ecosystem, has dropped a whopping 83.46% to $4.02 after trading at $87 on May 4. In early April, the cryptocurrency was sitting above the $100 zone, changing hands at $119, an all-time high.

UST is an algorithmic stablecoin that was supposed to trade at a 1:1 ratio with the US dollar. According to Chinese crypto blogger Colin Wu, on May 10, 46,239,360 LUNAs were minted. Overall, over the past four days, more than 80 million additional LUNA tokens have been created.

On May 10, a total of 1.2 billion UST were burned in an attempt to hold the price at $1. This burn was a record for the amount of crypto destroyed in a single day.

46,239,360 LUNAs were issued on May 10, and over 80 million additional LUNAs have been issued in the past 4d. UST supply burned more than 1.89 billion for 4d, and on May 10, 1.2 billion UST was burned, setting a new record for single-day destruction. https://t.co/DFHJxNqF0w

— Wu Blockchain (@WuBlockchain) May 11, 2022

However, the coin continues to lose its peg to the USD, trading below $0.5 now.

LFG sells Bitcoin to support UST

The UST first lost its USD peg on Sunday. Luna Foundation Guard (LFG) acquired an additional 37,863 Bitcoins (holding a comprised 80,394 BTC back then).

Two days ago, U.Today reported that LFG had announced that it would massively lend its Bitcoin to market makers to support the UST and its peg to the USD. However, this “loan” was more like a big sell order, giving BTC bought at $47,000 for just $33,000.

However, the Bitcoin price then dropped, causing a massive outflow of liquidity from UST, and the token lost its $1 peg.

Peter Schiff comments on Bitcoin and UST

Bitcoin critic Peter Schiff tweeted that LUNA can’t sell enough Bitcoin to hold UST at $1 because Bitcoin can’t secure enough liquidity for it. He added that a Bitcoin-backed stablecoin is “backed by nothing.”

This is Bitcoin’s critical flaw, according to Schiff.

#TerraUSD has crashed below 40¢. The collapse exposes a critical flaw in #Bitcoin. #Luna can't sell enough Bitcoin from its reserves to stabilize #UST at 1$ due to a lack of real liquidity in Bitcoin. Doing so would crash the market destroying the value of its Bitcoin reserves.

— Peter Schiff (@PeterSchiff) May 11, 2022