The multi-billion-dollar losses caused by the UST/LUNA crash have prompted G7 member countries to call for urgent regulation of cryptocurrencies.
G7 Calls for Urgent Crypto Regulation over UST/LUNA Fiasco. At a meeting this week, the body indicated that the goal is to ensure investor safety and financial stability as soon as possible. Reuters reports that the G7 asked the Financial Stability Board to expedite “consistent and comprehensive” global regulation. The news agency cites sources of a draft from the group. Seven of the world’s largest economies, Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States, are from the G7 group.
G7 and cryptocurrency regulation
The G7 has long warned of the risks that cryptocurrencies, as an emerging ecosystem, may pose to the global economy. The G7’s call comes after the crypto crash and subsequent crisis following the UST/LUNA crash, which has resulted in losses of more than $40 billion for investors. The G7 wants to build a regulatory framework to address existing risks quickly.
Although the organization’s draft does not clarify what governments could do to regulate cryptocurrencies comprehensively, the G7 has previously signaled that it should allow for greater scrutiny of emerging digital markets. The finance ministers and central bank presidents believe leaving the industry adrift without proper regulation could unbalance the financial system.
Similarly, the Bank for International Settlements (BIS) has also produced a paper on regulating cryptocurrencies this week. The BIS advocates a proactive and forward-looking approach, thus hinting that the law should not affect innovation.
The BIS urges lawmakers to create regulations for Decentralized Finance (DeFi), Non-Fungible Tokens (NFT), and stablecoins. The document notes that the European MiCA (Markets in Crypto Assets) regulations will address conflicting cases and harmonize crypto-assets laws. However, it will not apply to the decentralized financial ecosystem or algorithmic stablecoins.
“Decentralized stablecoins, including algorithmic stablecoins, should be exempted from the scope. The MiCA framework for asset referenced tokens is not designed for them. Therefore, there should be a separate regulatory framework tailored to address these crypto assets’ distinct structure and risks.”
A collapse in 48 hours
While international regulatory bodies are calling for urgent regulations for cryptocurrencies, more and more names of investors who had multi-million dollar losses with LUNA are surfacing daily. This cryptocurrency bottomed last May 13, when it fell to $0.0000167, according to CoinMarketCap. The steep drop, which led LUNA to lose almost 100% of its value, happened in just 24 hours, leaving many investors with no opportunity to protect themselves.
Major institutional investors, such as Hashed, Galaxy Digital, and Delphi Digital, reported losses of several million dollars. In the case of U.S.-based Delphi Capital, losses reached $10 million. The firm detailed that it had 13% of its assets under management staked in LUNA. However, the losses it reports correspond to the investment made in Luna Foundation Guard in February of this year.
“Delphi Ventures’ stake in LFG’s recent raise (February 2022), a $10 million investment based on LUNA’s current price, is fully forfeited.” Delphi Ventures Report.
The Luna effect
As for Hashed, Sam Reynolds, an analyst at CoinDesk, notes that losses could be as high as $3.5 billion. In a letter, Mike Novogratz, U.S. investor and CEO of Galaxy Investment Partners, said that LUNA’s fall had been humbling. In January, Novogratz showed on Twitter the tattoo on his arm of a wolf, a full moon, and the word moon. “It is now a constant reminder that risky investing requires humility,” he says in his letter. Most importantly, however, Novogratz points out that Galaxy remains focused on continuing to support crypto.
“The mission of the crypto community and Galaxy is not changing. I firmly believe now that the crypto revolution is here to stay. Together, we will weather this storm and come out stronger on the other side,” Mike Novogratz.
This year, the decentralized algorithmic stablecoin UST and cryptocurrency LUNA became one of the most promising crypto industry projects. Since May 2021, LUNA’s growth has supercharged by 1,150%. It traded as high as $120 last April. It is now worth near zero. The fall of the terra ecosystem produced a domino effect on the rest of the cryptocurrencies.