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Crypto Panic Takes Over Market After Luna Crash: Why Are Investors Fleeing?

2022-05-13T03:54:53.932Z

Bitcoin loses 17% in five days and sparks concern about its reliability in the midst of the storm unleashed by Luna, a currency that has gone from being worth 20,000 million to almost zero in just a few days



The future may be a place too far away for some cryptocurrency investors.

The collapse of a large part of digital currencies in recent days is sowing doubts in many of those who predicted a bright future in which they would be destined to replace traditional money and break the monopoly of central banks.

The virtual disappearance of Luna, which has starred in one of the worst fiascoes in the industry by going from being worth 20,000 million dollars to almost zero in just a few days, has left a trail of victims and contagion to the main cryptocurrencies: bitcoin leaves 17% in five sessions, and ethereum, the second in importance, 23%.

Why do they fall?

The trigger for the crisis was the loss of parity with the dollar of the

TerraUST

stablecoin.

This

stablecoin

was associated with the greenback through an algorithm that has proven ineffective, which immediately caused a domino effect that has taken Luna, its sister currency, ahead and has infected many others due to the loss of confidence.

Enrique Moris, a professional investor in the stock market and cryptocurrencies, sees the drag as normal.

“Panic has spread and logically the entire market has been infected.

Making a bad comparison, if tomorrow Facebook or Apple fell 99%, the same thing would happen and people would rethink their investments in other technologies.

However, he believes that over time the market will make distinctions.

“That this has happened in Luna does not mean that it will happen in the rest of the cryptocurrencies.

They are selling bitcoin even though it has nothing to do with it, ”he says.

Is it the beginning of the end for cryptocurrencies?

All together, the cryptocurrencies are worth 1.2 trillion dollars, according to the CoinMarketCap portal, so despite the setback they still have a capitalization equivalent to that of Amazon.

In the case of bitcoin, it is now trading for around $28,000, its lowest levels since the end of 2020. The so-called

cryptocrash

of these days, therefore, although it results in a loss of credibility, it does not mean its end.

In fact, bitcoin fell by 80% in 2018, a higher percentage than now.

Later, he was able to fully recover and set new highs.

Its defenders cling to those precedents in the midst of the selling panic, although history does not have to happen the same.

Even if it manages to recover and return to highs in the future, along the way many investors will have lost, because as the economist John Maynard Keynes pointed out, "the market can remain irrational longer than you can remain solvent", that is, there may be who needs to withdraw the money before to cover their expenses or because they consider excessive losses.

In difficult times like the current one, one of the most repeated war cries among small investors who bet on

cryptocurrencies

is to hold, that is, to endure the downpour without selling.

Moris maintains that the Luna case leaves a lesson in this regard: “

Holding

for ten years under the thesis that tomorrow you will earn more money if you are patient does not work in the

crypto world

, because there are projects that can fall by 99%, as has happened with Luna”.

The lack of financial culture is in certain cases behind the large losses of small savers.

"There are people who are new to the world of investment, and because a project is among the ten largest, it already takes for granted that tomorrow it will be worth more," Moris detects.

More information

Cryptocurrencies: the money revolution that (for now) is just speculation

Punctual correction or collapse?

The ups and downs of bitcoin and other cryptocurrencies are not new.

Since its birth more than a decade ago, the difficulty in knowing what its real value is has caused strong oscillations.

In its beginnings, the strong revaluations helped to support the legend that it was a relatively simple way to multiply savings.

But past benefits do not guarantee future ones.

In its current value, expectations about its future use converge that are not confirmed, and certain doses of what among small investors is called FOMO, an acronym in English for

fear of missing out .

—fear of missing out on something, in this case a hypothetical juicy profit—.

The difference of opinions is abysmal.

Among the experts there are those who believe that the only reason why they rise is that someone else buys them, and others who see in them a reserve of value that is only in its infancy.

When bitcoin hit highs near $68,000 in November 2021, the latter seemed reinforced, but now the opposite is true.

What about those who have lost?

The thousands of small investors who entrusted their money to Luna or TerraUST have no means of recovering what they lost.

Cryptocurrencies are now high-risk assets moving in something akin to a financial Wild West.

And the messages of those who have seen what has been accumulated for months or years evaporate in a few days flood networks like Twitter or Reddit.

The case can indeed encourage a greater interest of the authorities to regulate its operation.

The US Treasury Secretary, Janet Yellen, has requested this in recent hours.

And the European Union is finalizing a regulation that should be ready by the end of the year.

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Source: elparis

All business articles on 2022-05-13

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