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Terra LUNA Price Drops As House Bill May Ban Stablecoins ‘Like TerraUSD’

James Spillane
Last updated: | 2 min read

The USTC, LUNA and LUNC price are in the red today amid breaking news that a House stablecoin bill could see coins like TerraUSD banned for two years.

Potential Algorithmic Stablecoin Ban

Bloomberg, which obtained a copy of the proposed stablecoin bill, reported:

Stablecoin legislation being drafted in the House would place a two-year ban on crypto coins similar to TerraUSD, the algorithmic stablecoin that collapsed earlier this year.

It would be illegal to issue or create ‘endogenously collateralized stablecoins’ that rely solely on the value of another digital asset from the same creator to maintain their fixed price.

An enquiry into Terra tokens and similar crypto assets is expected to be conducted by the Treasury, Federal Reserve, Securities and Exchange Commission (SEC) and other regulatory bodies.

The terms of the proposed legislation can still change before a final version of the stablecoin bill is passed. The Block writes:

Issuing a stablecoin without approval from regulators could be punishable by up to five years in prison and a $1 million fine.

The stablecoin bill is under negotiation between Maxine Waters and Patrick McHenry, who is ‘yet to sign off on the legislation’.

Earlier this week Terra Classic (LUNC) was up 15%, trading as high as $0.00032 while the crypto markets sold off heading into Wednesday’s FOMC meeting.

The LUNC price has now retraced half of that rally, and the LUNA price is in the red this week, down 2 – 3%.

TerraClassicUSD Price Drop

TerraUSD, now rebranded to TerraClassicUSD (USTC) has been harder hit, selling off almost 5% in the past 24 hours.

USTC Price Data via CoinMarketCap

The Bitcoin and Ethereum price are also down several percentage points, as news of possible stablecoin regulation has historically resulted in Tether FUD and USDT being depegged, if temporarily.

Tether is backed by cash reserves and was unaffected by the UST and LUNA crash of May 2022.

Some market commentators have argued that increased government regulation and a ban on algorithmic stablecoins could in the long term be a bullish catalyst for cryptocurrency, helping to improve investor confidence after the UST collapse.

Others including founder of The Block and 6th Man Ventures Mike Dudas interpret the stablecoin bill as bearish.

Capital moving out of algo stables could be seen as positive for other types of crypto project – elsewhere in the market new altcoin presales are still attracting buyers.