There is fear among crypto investors since the stable coins like LUNA and Terra crashed to dust in the market last week. The crash of these coins gave a shockwave in the entire market due to which value of the tokens like Bitcoin and Ethereum fell down heavily. However, Bitcoin managed to recover little during previous days.
As of now, the Terra and LUNA are worthless and they have been delisted from many exchange platforms after 100 per cent fall, including CoinDCX, and WazirX. Amid this situation, investors are panicking and moving their money to Bitcoin and Ethereum which has been stable for few days after falling down to the lowest.
While some of the investors are resistant in going further to invest in crypto after the crash, there are some enthusiasts who hope that the after-effect of crash is going to last just for two to three months and situation will be back on track for their fresh investments.
A man, who borrowed money from his parents to invest in LUNA — now has a value equal to zero, is hoping that situation will turn around and he will invest again the currency.
Despite the lack of regulations in India, many have remained invested and many more have increased investments in cryptocurrencies in the hopes of getting returns that are higher than any other asset class.
What Are Stable Coins And How They Crashed
The stable coins are considered less volatile than other crypto coins like Ethereum and Bitcoin which may fall and rise quickly. These stable coins are fixed to be like USD or Euro meaning that their price will remain stable for longer period.
Investors who want to earn a decent profit avoiding sudden fall and rise, associated with other coins, invest in these stable coins. Some popular stable coins are Tether and USD Coin. Usually any coin which is fixed to USD maintains value of USD 1, but this time something different happened in the last few days which left investors in a fix.
TheLUNA and Terra are created by the same developers. They both work according to each other. It simply means that in order to maintain the price of Terra, the LUNA supply pool adds or subtracts from Terra’s supply pool. All this is done by using a complex algorithm by the developers.
For instance, say the value of a Terra coin plunges to USD 0.80 and since you can exchange USD 1 worth of Terra for USD 1 Luna, smart investors can quickly earn a small profit of 20 cent by burning their TerraUSD.
These coins remain stable by balancing demand and supply which was broken in the last few days resulting to crash. The investors who held a large number of Terra coins in Anchor Protocol to earn interest of 20 cent, pulled out from the Anchor to sell them off to invest in LUNA, because of a rumour that Terra is changing the fixed rate of 20 per cent interest to a variable rate.
Ultimately, this gave a sudden spike in the supply of LUNA and its price plummeted. With more and more people dumping the Terra coin, the balancing mechanism stopped and both the coins—Terra and Luna crashed.
Following the fall in Terra, investors panicked and started selling their other coins resulting in crypto market crash.
The world’s largest crypto Bitcoin plunged to USD 25,400 on May 12. However, since then, it has shown tepid signs of stability.
About 20 million people in the country have jumped on to the crypto bandwagon in 2021 and have become part of the Indian investor’s lexicon.
Risks To Consider Before You Invest
If you want to invest in the cryptocurrency and earn a good return, it is important to understand how does it work and what are the factors that influence the price of the coins in the market.
One needs to understand the blockchain system in which all the transactions are recorded only if it is done within the system.
Investors should understand how a transaction is recorded in a distributed database, and how different blockchain support different crypto coins.
There are some technical issues which drive the coins and recent turn of events are good example of technical anomalies. The LUNA which was considered to be the stable coin and remained stable even if the entire market fluctuates, crashed 99 per cent and has been delisted from many platforms.
In fact, cryptocurrenciesare known to rise and fall by double-digit percentages within a span of hours. Volatility is what drives investors to bet big on crypto. This is caused by a range of factors including supply and demand of the coin, user sentiments, government regulation and sometimes even a tweet by tech entrepreneurs like Elon Musk.
Also, one needs to be aware of the scam in the crypto world. There are Fake apps, wallets and emails have been designed to lure investors to give their pin codes so that hackers can run away with the invested money.
For instance, the recent case of the Squid Game token prevented many holders from reselling their tokens, ultimately stealing millions of dollars.
Investing Safely
When there are so many risks in investing in the crypto and there is no certainty of the returns, one needs to be on safer side and should invest only the amount which can be afforded to lose. If you are not able to withstand the likely full loss of your crypto investment, that means you cannot afford the risk of investing the amount you are considering.
Invest only the money that won’t change or harm your lifestyle in any way. Try investing a small portion of your earnings. Give yourself a certain amount to invest every month, and when you run out, don’t invest more so that you won’t jeopardise the financial stability.
Putting all your eggs in one basket is not the right strategy in the world of crypto. What’s better is to split your investable income into different coins and exchanges. This is because all the exchanges don’t have the same assets.
Emotions lean towards survival. Managing your emotions is the most important in the crypto world. Fear of loss and greed is any trader’s worst enemies. Every investment has some risk associated with it. Do not blindly follow what’s trending. It is necessary to do your own research and then determine what’s best suited.
Luna Foundation Guard Announces Compensation
The Luna Foundation Guard (LFG) on Monday announced compensation to its users following the crash of Terra ecosystem.
It said that when the price of TerraUSD began to fall below one dollar, the foundation began converting this reserve to TerraUSD.
“Consistent with its non-profit mission & focus on the health of the Terra ecosystem, beginning on May 8, when the price of $UST began to drop substantially below one dollar, the Foundation began converting this reserve to $UST,” it said in a series of tweets.
The Foundation directly executed on-chain swaps and transferred bitcoins (BTC) to a counterparty to enable them to enter trades with the Foundation in large size & on short notice.
The LFG’s remaining reserves currently consist of 313 BTC, 39,914 Binance Coin, 1,973,554 Avalanche, 1,847,079,725 UST, and 222,713,007 LUNA. It had over 80,000 BTC in reserves as of May 7.
