Cryptocurrency is on the defensive after Terra collapse

It is an all-round sea of red for almost everything inCryptocurrency on Thursday, with altcoins such as Avalanche, Solana and Ether taking a beating. Traders are partially stumped as to why this is happening today, but for Ethereum the signs of a lack of demand have been building for quite some time.

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The collapse of Terra, a blockchain platform that supported one of the biggest experiments in decentralization finance, has knocked an already bearish market into wild contagion this month. While Terra s operators had passed a revival plan to start afresh on Wednesday, investors in the rest of DeFi were less convinced.

On Thursday, ether was down as much as 11% before paring losses to around $1,806, far below the key threshold of $2,000 that it needs to trade above if bearish sentiment is to be lessened. Other tokens linked to protocols popular with decentralized finance projects such as Avalanche, Solana and Polkadot slumped, down between 11% and 17% over the last 24 hours.

After dropping to as low as $28,007, the currency acted as a haven, paring losses to around 3%.

The demand for blockspace on the Ethereum network has decreased significantly in the wake of the collapse of Terra, which means that the network's exorbitant gas fees are falling. With the exception of a few spikes during high-profile minting events like Yuga Labs Otherside Land Sale, Glassnode data shows that gas prices have been trending downward since December and recently reached multi-year lows.

It's likely that that's going to exacerbate the negative effects for the token in the short term, coupled with poor price performance. DeFi developers are dusting themselves off after the collapse of Terra halved the sector's total value, and dampened markets aren't going to help in convincing them that now is the time to get back in the game.

The Federal Reserve's rate-hiking regime has caused volatility in the market, and has dulled previously-hot growth and speculative assets, which has cooled investors' views on the topic of cryptocurrencies. Scott Minerd, Guggenheim Partners Chief Investment Officer, said he expectsBitcoin to fall to $8,000. Mark Zuckerberg isn't on Instagram to try and catch TikTok.

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