Luna’s Dramatic Fall
The Luna cryptocurrency was worth about $116 in April, and if you had invested it, you would have thought it would have made a good investment. But Luna’s value has dropped dramatically since then: Its approximate value has now fallen to around $2.10.
Luna isn’t the only cryptocurrency to see a 30% drop in April. Some have recovered to some extent, but the total loss of over $500 million in seven days represents an investment and raises existential questions about the future of the market.
“UST Stablecoin” in Crypto Money Markets
It may have been triggered as a result of a financial “attack” on UST, which was designed to match the US dollar, and the stablecoin Terra (UST) is currently trading at just 0.05 cents. Luna, which is associated with this, also collapsed due to this situation.
Such an attack is extremely complex and involves multiple transactions in the crypto market to trigger certain effects that can bring significant profits to the “attacker”.
These transactions caused Terra to fall, which in turn triggered the corresponding currency Luna to fall as well. When this was noticed, people panicked, causing withdrawals and triggering further panic. Some, if not all, stablecoins rely heavily on perception and trust. This situation can bring big falls after being shattered.
Due to the recent huge declines in cryptocurrencies, it has led people to question how stable stablecoins really are.
“Black Wednesday” in the Crypto Money Sector
This effect, seen in April, spread to the crypto space and resulted in one-day losses for cryptocurrencies that were similar to a “Black Wednesday” or possibly worse (Black Wednesday was the day that speculators forced the pound currency to collapse in 1992). Even Tether, one of the main stablecoins, fell to 95 cents against the dollar, perhaps indicating the need for regulation. Because if stablecoins are not stable, then it begs the question of where is the “safe haven of crypto”.
Trust in Crypto Money Markets
The reaction of investors will be the key that drives the future of cryptocurrencies. We have seen panic and despair, and some have likened this collapse to a traditional bank escape. But in bank escapes, instead of worrying that their money is worthless, customers worry that their bank won’t be able to give them their money.
A more accurate comparison concerns stock market crashes, where investors worry that the stocks they own will soon lose value. And so far, the reaction to this cryptocurrency crash suggests that a large portion of cryptocurrency holders view their investments in a similar way. Despite historical price volatility, there is one basic assumption that is often seen in investor behavior: that the asset’s price will rise and continue to rise. In this scenario, the investor does not want to miss anything. They observe that the asset is rising, and they perceive it as a “certain thing” and then invest.
Often, clients who make a profit on their initial investment may invest more later. Combining this with social media and the fear of missing out on “inevitable” gains, he continues to invest.
Simply put, many people will have invested in cryptocurrencies because they believed it would make them richer. That belief was certainly shaken.
But another motivation for investing in cryptocurrencies may be the belief in the idea that cryptocurrencies will replace and replace traditional finance.
For these investors, every increase in the value of a cryptocurrency is a testament to the growing power of the cryptocurrency over traditional money. But for the same reason, a significant decline in the value of cryptocurrencies is not just a monetary loss, it is ideological.
Groups with certain motivations tend not to sell even in the face of a sharp decline. And these groups can still give hope to the industry.
In established stock market crashes, we talk about a return to “fundamental value”. The basic value of crypto is usually assumed to be zero. The size of the group of investors who own cryptocurrencies because they believe in their long-term future and the promise of new money can determine the fundamental value of cryptocurrencies.
If we look at cryptocurrency investors with different motivations in groups, we can better understand the observed behavior. Investors can perhaps take solace in the fact that this slump has seen the worst and that better days are ahead of us. As a financial advisor will tell you, nothing is guaranteed in the crypto markets like any other market.
