Terra Luna Crypto crashed this week. Just 3 months ago, I wrote about LUNA whereby 1 Luna coin was trading at SGD 69.95. Even though I envy how many stock investors became millionaire within a few weeks speculating LUNA, I did not jump onto the LUNA bandwagon by pouring in my hard earned savings.
At this point of writing, I held 0.02 LUNA through Crypto.com Supercharger program but I could not swap or sell it because Crypto.com has suspended the trading of LUNA on its platform. Several other crypto trading or lending platform such as Hodlnaut has also suspended LUNA programs on their platform.
What is LUNA?
LUNA is Terra’s native token which is used to stabilize the price of the protocol’s stablecoins. Luna is used as a governance token.
Relationship Between Terra (UST) and LUNA
Terra (UST) was designed to maintain the value of one US dollar at all time. We usually call this as “peg” which means one UST is peg to one US dollar.
The relationship between UST and LUNA is that every time a UST is bought, a LUNA is burnt. This means that there is less LUNA tokens in the supply chain and thus the value of LUNA goes up. When people sells a UST, a LUNA is mint which increases the volume of LUNA in the supply.
What caused the Crash?
Based on what I read, large quantities of UST was being withdrawn from (DeFi) platforms and a dumping of UST from a single wallet onto the Ethereum block chain and Binance crypto exchange. Because of this, there was an exponential sudden minting of new LUNA and due to the design flaw of LUNA, this caused the “depeg”.
What is the current price of LUNA?
At this point of writing, the price of 1 LUNA is equal to $0.00005 USD. The coin has lost 100% of its value within a few days.
Digital assets such as Crypto remain highly risky as compared to stock investment, bonds and other financial trading instruments. Having said that, it does not mean we should avoid Crypto totally. Just remember not to put all your eggs into one basket and diversify your money into different assets.
“Only invest with money you can afford to lose” – My Sweet Retirement
If there is no proven/robust basis for valuation of Luna*, should this even be in a (personal) managed investment portfolio. Should one put aside $1000 for gambling at the casino and say it is alternative investment and then conclude that it is not too bad when the money is gambled away (lost) because of the remaining (eggs of) basket. It is a bad egg to start with, but with gambling, one knows that it is gambling to start with. I like the cautious approach, and the diligence done in the writings. I am wary of your conclusion about cryptos as an asset being ok because it is part of diversification. I am aware of major personalities in the investment firms putting that same conclusion (messaging?) but there are client pressures and one has to offer cryptos. At the personal level, you are your own client and there is no such pressure.
PS. There is a (usual) humorous write up on this* by Matt Levine.