Whether Luna will ever fully recover. The query that the crypto community is waiting to hear about right now! Fascinatingly, if you had invested 10 lakh rupees in Luna, it would now only be worth 100 rupees.
That is how severely Luna has failed.
Today, we’ll try to understand what experts believe about whether or not the price of Luna will increase and how it’s connected to the TerraUSD (UST).
How Severe Was Luna’s Crash?
By 99%, Luna has disintegrated. Sincerically, even more than that. On Wednesday, this coin’s value plunged precipitously.
What peaked on April 5, 2022, at 116.51 USD, crashed to less than 70 USD on May 8, and then fell to less than 50 USD on May 10, 2022.
On May 11th, it further declined to less than 2 USD, and as of right now, it is only worth about 1 cent.
However, how did Luna’s price fall so drastically in May 2022?
The connection between Luna and the terraced (UST) was a major factor in its failure. It is an American dollar-pegged stablecoin.
Designers create stablecoins, which are distinct cryptocurrencies, to maintain stability. UST is a stablecoin that uses an algorithm.
Always keep the cost at or near $1 USD. Let’s examine the relationship between Luna and UST in order to comprehend what happened with Luna.
How are UST and Luna Related?
UST is a Luna-linked dollar with an algorithmic foundation. In order to keep the UST price at or near 1 USD, Luna is either minted or burned.
The algorithm automatically creates new LUNA tokens and sells them to buy UST when UST drops below 1 USD. Until the 1 USD peg is reached, the mechanism continues.
The algorithm buys and burns Luna automatically when UST rises above 1 USD.
With the aid of a decentralized algorithm, this is how UST pegs and maintains the value of 1 USD.
Holders of USTs used to receive an APY of about 20%. Due to the significant increase in UST demand brought on by the high APY in stablecoins, the price of Luna increased significantly over the course of 16 months, rising from less than $1 to over 115 USD.
What Decreased the Price of Luna in 2022?
UST depegged for the first time in 2022 over the past weekend, on Saturday. UST dropped by more than 2% before quickly bouncing back.
The Luna Foundation announced on Twitter that they are lending their BTC reserve to market makers who would trade both sides of the market in order to maintain the 1 USD peg.
In actuality, the Bitcoin holdings were sold in order to purchase UST and maintain the peg to 1 USD.
1/ Over the past several days, market volatility across crypto assets has been significant.
The market turmoil is also reflected by the past week’s uncertain macro conditions across legacy asset classes.
— LFG | Luna Foundation Guard (@LFG_org) May 9, 2022
Do Kwon, however, claimed on Twitter that they had not yet sold any bitcoin.
Can we get some good comms from the @LFG_org account?
I hate to be negative, but this is just bad. Where’s the other important information?
1. Has $BTC been sold / how much?
2. More details about the extent at which the peg has had to have been defended thus far$UST $LUNA https://t.co/NHabxXrZmG
— Tundra V1 (@tundra_v1) May 9, 2022
The holders had no idea what would happen to their holdings over the following few days, and the initial de-pegging was only intended as a test.
On May 10, 2022, UST complained that its price had dropped by over 30%.
More Luna coins were produced and sold to purchase UST in order to keep the price fixed. On May 11, 2022, UST increased from 0.68 USD to more than 0.9 USD, but it was still unable to reach the peg.
The same day, it fell even further to 30 cents, and an increasing number of Luna coins were produced. The price of the Luna token dropped to less than one cent as a result, leading to a massive 55X increase in the Luna supply.
Lunacy Crash 2022: Effects
Luna’s market capitalization has already decreased. It is now only 164 million pounds, down from 40 billion pounds. Some top cryptocurrency exchange platforms have put the withdrawal of Luna coins on hold.
A general slowdown in the cryptocurrency market has been caused by the collapse of the Luna coin. Many coins have started to lose value quarter by quarter over the last 24 hours. Less than 1.2 trillion dollars’ worth of cryptocurrency was traded in 2017.
Investors simply want this situation to calm down and come to an end.
The wider adversity surrounding investment risks has already engulfed the cryptocurrency market. It’s challenging to determine whether the market is at comfortable levels or not because of the rapidly rising inflation.
What Issues Arose From the Luna Crash?
When its native Luna token collapsed and was no longer able to support its sister token, the price of UST fell.
Various anchor protocols based on Terra sold about $500 million worth of UST positions.
Terra previously promised a mechanism where users could exchange 1 UST for $1 worth of Luna coins. Reversing the process results in the same result. Designers primarily intended to keep the peg in place with this mechanism.
The purpose of this design was to eliminate the UST’s price volatility. But this was a failure.
Will Luna Ever Get Better?
Even though the current state of affairs appears to be very alarming, there was a lot of hope. The ecosystem of Luna seemed too important to fail.
On May 10, 2022, Terra’s founder, Do Kwon, tweeted:
Close to announcing a recovery plan for $UST. Hang tight.
— Do Kwon 🌕 (@stablekwon) May 10, 2022
He also tweeted, “Additionally,”
1/ Dear Terra Community:
— Do Kwon 🌕 (@stablekwon) May 11, 2022
Numerous investing websites have made predictions that cryptocurrencies have a good chance of making a comeback.
“The need to solve Luna’s current issue arises because of the lack of a guarantee that another drop like it won’t occur.” The Terra Project decides not to have the same problems happen again.
Retail investors have probably collectively lost more than $1 billion as a result of the Luna UST crash. Even their homes have been lost by of them. So bad is it, really?
Although the community is considering a new Terra Money and plans to fix things by taking a snapshot prior to the attack and airdropping new tokens to the then-holders, we believe this will not be simple.
There is actual pain. Losses actually exist. It has caused enormous damage. Redressing the situation for UST and Luna is challenging.
Is Luna a good time to buy?
The Luna’s ability to ever again reach its ATH is incredibly unlikely. Luna finds it extremely challenging to recover.
Price reductions of up to 90% are possible in the future. If you want to gamble, keep your bets small for the time being. I personally wouldn’t put any money into Luna right now.
Should You Purchase UST Today?
I would steer clear of UST, like Luna. However, if given the choice between purchasing Luna or UST, I would pick the latter.
But once more, I wouldn’t invest a lot of money. I’ve already failed in my attempt to purchase the UST bottom after concluding that UST cannot depeg.
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What should I do now that I’ve already spent all of my savings on Luna and UST?
Awareness of the fact that you lost your life savings causes you immense pain. Please remain composed and trust in God. You have a great chance in life to make back everything you’ve lost and more.
It’s time to take a seat with a pen and piece of paper and begin the process all over again. If you would like to share your experience with us, feel free to leave a comment.
Is Bitcoin still dangerous?
People who choose to invest in cryptocurrencies do so at their own risk because they are not subject to any financial regulatory bodies.
We are all aware of how risky and volatile investments in cryptocurrencies can be. This gives the impression that you should be ready to lose everything if you invest in cryptocurrencies.
The Financial Conduct Authority (FCA) instructs buyers to always prepare for the possibility of losing all their money when investing in cryptocurrencies. Being unregulated raises the level of skepticism among all investors who are buying cryptocurrencies.