We know algorithmic stablecoins are new and risky. UST is backed by Luna, and the foundation behind Luna bought so much Bitcoin I believe they're now amongst the top 10 holders.
If UST loses its peg against the dollar and Luna isn't enough to bring it back up, the foundation will have to sell some of its BTC to keep the peg, which applies sell pressure on BTC and brings it down along with the whole crypto market.
Is this what's happening now already?
I do not think that UST is the one bringing the market down. Bitcoin is already on that path before Terra Luna crashes. It don't think it is one of the reason why BTC price plummet since I don't hear any news that they are liquidating their BTC holdings yet.
As far as I know they increased the minting of Luna per day to solve the current problem.
Do Kwon, the coin’s creator, made a last-ditch effort to return UST to its $1 peg by increasing the rate at which new luna is minted per day. The venture is essentially allowing supply of its stablecoin to be eaten up, a move it hopes will boost the price.