Will Luna and UST Ever Recover Back in 2022? Investors Lost their Life Savings
Will Luna ever recover back? The most anticipated question in the Crypto world right now! Interestingly, if you had invested around 10 lakh rupees in Luna, it would be just 100 rupees today. That’s how badly Luna has crashed. Today, we will try to understand what experts think about whether Luna’s price will go up or not and how is it linked to TerraUSD (UST).
What we are going to learn?
How Badly Has Luna Crashed?
Luna has crumbled by 99%. Honestly speaking, even more than that. The value of this coin crashed dramatically on Wednesday.
What was trading at 116.51 USD on 5th April 2022, crushed to less than 70 USD on 8th May, and then below 50 USD on the 10th of May 2022.
It further crashed to less than 2 USD on 11th May, and now trading at much lesser than 1 cent.
But how did the price of Luna crash so badly in May 2022?
Major reason for Luna crashing was because of its link to terraUSD (UST). It is a stablecoin that is pegged to the US dollar.
Stablecoins are basically another cryptocurrencies that is suppose to stay stable. UST is an algorithmic based stablecoin. The price should always stay around 1 USD. In order to understand what happened with Luna, lets understand, how is Luna and UST linked.
How is Luna and UST linked?
UST in an algorithmic based dollar that is linked to Luna. The way Luna and UST works is, to keep the UST price around 1USD, Luna is either minted or burnt.
When UST falls below 1USD, the algorithm automatically mints new LUNA tokens and immediately sells them to buy UST. The mechanism keeps continuing unless 1USD peg is reached.
When UST goes above 1USD, the algorithm automatically buys Luna and burns them.
This is how UST pegs and stays 1USD, with the help of decentralised algorithm.
UST holders also used to earn around 20 percent APY. The high APY in a stablecoin caused a lot of demand of UST, and as a result, Luna’s price grew a lot from less than a dollar to more than 115 USD within 16 months.
What Caused the Crash in Luna’s Price in 2022?
Last weekend, on Saturday, UST depegged for the first time in 2022. UST fell more than 2 percent and quickly recovered.
To maintain the 1 USD peg, Luna Foundation announced on Twitter that they are loaning their BTC reserve to market makers that would trade both sides of the market.
However, the truth is the Bitcoin holdings were sold to buy UST to keep the peg to 1USD.
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
However, Do Kwon on Twitter said, they had not sold any Bitcoin yet.
Haven't sold bitcoin yet – the txn just went out. It's a loan to a market maker – if UST imbalance happens we will use BTC to rebalance, and if demand is surplus we will buy BTC
We plan to eventually redeem this entire clip in bitcoin, let's see
— Do Kwon 🌕 (@stablekwon) May 9, 2022
The initial de-pegging was just a test and the holders were unaware of what is going to happen to their holdings in the next few days.
UST grumbled with its price, falling more than 30 percent on 10th of May, 2022.
To keep it pegged, more Luna coin were minted, immediately sold to buy UST. On 11th of May, 2022, UST went up from 0.68USD to more than 0.9USD, however, it still could not achieve the peg. it further crashed to 30 cents the same day, and more and more Luna coins were minted. This caused an enormous increase in the Luna supply to more than 55X and as a result Luna token’s price fell to less than a cent.
Luna Crash 2022: After Effects
The market cap of Luna has already fallen. It has fallen down from 40 billion pounds to 164 million pounds. Some of the leading cryptocurrency exchange platforms have also suspended the withdrawal of the Luna coins.
This collapse of the Luna coin has created a general slowdown in the world of cryptocurrency. In the past 24 hours, a lot of coins have started to lose their value quarter by quarter. The Crypto marketcap fell from 1.5T USD to less than 1.2T USD.
Investors are just waiting for this situation to calm down and end.
The crypto market is already caught up in the wider adversity related to investment risks. Due to soaring inflation, it’s difficult to decide whether the market has comfortable levels or not.
What Were The Troubles of Luna Crash?
The price of UST dropped down when its native Luna token crumbled and could no longer be in support of its sister token.
Around $500M worth of UST positions were sold through various anchor protocols that were based on Terra.
Previously, Terra promised a mechanism wherein users can swap 1 UST for $1 worth of Luna coins. The same can also be done in a reverse way. The main intention of this mechanism was to maintain its peg. This design was built to rule out the price volatility of UST. However, this failed.
Will Luna Ever Recover Back?
Even though the situation seems to be extremely concerning right now, there was a lot of hope. Luna ecosystem seemed to be too big to fail.
The founder of Terra, Do Kwon, tweeted on 10th May 2022,
Close to announcing a recovery plan for $UST. Hang tight.
— Do Kwon 🌕 (@stablekwon) May 10, 2022
Adding on to this, he further tweeted,
2/ I understand the last 72 hours have been extremely tough on all of you – know that I am resolved to work with every one of you to weather this crisis, and we will build our way out of this.
— Do Kwon 🌕 (@stablekwon) May 11, 2022
14/ Terra’s return to form will be a sight to behold.
We’re here to stay. And we’re gonna keep making noise.🌕
— Do Kwon 🌕 (@stablekwon) May 11, 2022
A lot of investing sites have speculated that cryptocurrency has a good chance of recovering back. The problem that Luna is currently facing needs to be addressed with the uncertainty that such a drop will not happen again. Terra project decides to not replicate the same issues again.
Creators of Terra are building a new ecosystem, Do Kwon said in his tweet,
12/ As we begin to rebuild UST, we will adjust its mechanism to be collateralized.
— Do Kwon 🌕 (@stablekwon) May 11, 2022
Retail investors have collectively lost somewhere more than a Billion dollars in the Luna UST crash. Some of them have even lost their homes. Thats how bad it is.
What we at Cryptobullsclub.com think it it is difficult for Luna and UST to rise from here.
Though the community is looking into a new Terra Money, and plans to fix things by taking a snapshot before the attack and airdropping new tokens to the then holders, but we think this is not going to be easy.
The pain is real. The losses are real. The damage that is done is huge. It is difficult to make things right for Luna and UST.
Should You Buy Luna Now?
It is extremely unlikely that the Luna will ever reach its ATH again. It is really difficult for Luna to recover. The price may further plummet by more than 90 percent. I would not invest any penny on Luna right now, but if you would like to gamble, ensure you do not put a lot of money into it now.
Should You Buy UST Now?
Like Luna, I would avoid UST too. But given an option to buy between Luna and UST, I would choose UST. But again, I would not put a lot of money. I have already lost trying to buy the bottom of UST thinking it is impossible for UST to depeg.
I have already lost my life savings on Luna and UST: What should I do?
I know it is extremely painful for you to accept the truth that the life savings are lost. Please keep calm, and have faith. Life will give you enormous chance to earn much more than you have lost. It is time to sit back with a pen and paper, and start working from zero again. Feel free to drop a comment if you wish to share your story with us.
Video: Will Luna and UST Recover in 2022?
Is Cryptocurrency Still Risky?
Since cryptocurrency is not governed by any financial authorities, people decide to invest in it at their own risk. We all know that crypto investments are risky and exceedingly volatile. This creates a sense of understanding that if you are investing in cryptocurrency you should be prepared to forfeit everything.
According to the Financial Conduct Authority FCA, buyers should always be ready to lose all of their money if they are decided to invest in cryptocurrency. Being un-regulated adds another level of doubtfulness to all the investor’s that are investing in cryptocurrencies.