For the first time in 16 months, cryptocurrency Bitcoin fell below $26,000 amid a sell-off in cryptocurrencies that wiped more than $200 billion from the whole market in just one day.

The Financial Post reported that "Bitcoin plunged by as much as 10% to its lowest levels in 16 months at US$25,401.05. In the past eight sessions, it lost a third of its value, or US$13,000, and is down more than 45% so far this year."

"From a peak of US$69,000 in November 2021, it has lost nearly two-thirds of its value," the Post highlighted.

Similarly, Ether, the world's second-biggest cryptocurrency, plunged as low as $1,704.05, falling for the first time below $2,000 since June 2021.

According to Reuters, the massive sell-off has decreased the combined market value of all cryptocurrencies to US$1.12 trillion, around a third of its value last November.

The sell-off cause

Regarding the reason for the sell-off, the Financial Post noted that "panic spread from a meltdown this week in stable coin TerraUSD, known as “UST”, when it slipped below its 1:1 peg to the dollar."

Reuters quoted Richard Usher, head of OTC trading at BCB Group, as saying that "the collapse of the Peg in TerraUSD has had some nasty and predictable spillovers. We have seen broad liquidation in BTC, ETH and most ALT coins."

The Financial Post defined stablecoins as "digital tokens pegged to the value of traditional assets, like the U.S. dollar. Because of this they are favoured in crypto markets in times of turmoil."

"Most stablecoins are backed by reserves, but TerraUSD is an algorithmic, or “decentralized", stablecoin, which is supposed to maintain its peg via a complex mechanism which involves swapping it with another free-floating token," the newspaper explained.

Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, underscored that “the Terra incident is causing an industry-based panic, as Terra is the world’s third-biggest stable coin,” and that TerraUSD “couldn’t hold its promise to maintain a stable value in terms of U.S. dollars.”