This TabStocks article takes an in-depth look into Terra Luna to discover if Luna is the new bitcoin after the drastic fall
Name and Trading exchange platform
Terra Luna – Gemini
– Other Crypto Exchanges
The sector of Luna
Terra Luna, better known as Luna is a cryptocurrency founded in 2018 as part of Terraforms labs by the peculiar controversial figure, Do Kwon.
He was a graduate of Stanford University and had worked as a software engineer for big tech companies like Microsoft and Apple.
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Kwon partnered with Daniel Shin to form the company and create what they termed a ‘modern financial system’ in which users could conduct complicated transactions without the need for intermediaries.
Terra is a blockchain whose primary role is to support a network of algorithmic stable coins. Terra USD is the most popular of these coins.
Luna serves as a stabilizing mechanism for coins and is a governance token in the Terra network.
Terra is a competitor to the industry leader Ethereum (ETH).
Recent news on Luna
Luna has been a sizzling discussion in the markets following the giant crash experienced recently. The coin lost nearly all of its value falling to near zero.
The company has sent shock waves to the entire crypto industry eroding nearly $300B worth of value across the sector.
Industry experts have said that they foresaw the downfall and it was bound to happen.
Many retail traders have lost fortunes in the wake of the crash.
Binance’s CEO has wittingly remarked that he is now ‘poor again’ following the crash.
The crypto exchange is the largest in the globe and had a significant stake of about $1.6B of Luna at its peak. This is now at a meagre $2,200.
The crash has also impacted some institutional investors, but they have been mostly gainers who cashed out early, amassing huge returns.
The coin has been said to be fundamentally flawed in its value model consisting of algorithms tied to its stable coin TerraUSD which hugely contributed to the crash.
Both optimism and pessimism have been witnessed in the aftermath of the meltdown.
Some see this as a great opportunity for a bargain, while others have remained sour regarding the huge value lost.
Suicide lines were buzzing as the lifetime savings of individuals dissipated into thin air.
Naysayers who are anti-crypto have capitalized on the downturn to trash-talk the industry.
Crypto has been promoted as a ‘hedge’ against inflation and destabilization of fiat currency, this notion has come under fire, especially with the Terra crash, which is supposed to be a stable coin.
Some extremists have pointed out that Terra could take down other algorithmic stable coins along with it.
The future of Luna is now in question as losing 99% of its total value.
Current position of Luna
The company was established in 2018 as Terraform in South Korea.
It launched its first cryptocurrency Terra token raising more than $200M in funding from firms such as Coinbase, Galaxy Digital and Lightspeed Venture Partners.
Although the company seems practically bust, and some investors have dared to proclaim it dead, the backing of these huge investors is a great arsenal for Terra Luna.
The crypto hype is the new dot com bubble with numerous coins and companies emerging each day.
This market frenzy spells disaster for many new emerging cryptos without a solid background. Many of these are bound to fail and it’s just a matter of when not if.
Luna is a special case as it is quite established in the market and supported by the major players.
The recent collapse is just a reminder that nothing is too big to fail.
At its greatest Luna was at $45B worth of market value, some believe this figure was greatly propped up.
Terra USD was the third-largest stable coin by market capitalization before the fall in May. But one needs to understand what is a stable coin to understand the fate of Luna.
A stable coin is essentially a coin that is pegged to crypto, fiat currency or exchange-traded commodities.
This was not the case for Terra USD which used Luna as its primary backing asset through a complex model called a ‘burn & mint equilibrium’.
This method is designed in a way that one coin is supposed to remain stable (UST) while the other (LUNA) takes volatility.
A counterintuitive saying in trading is that volatility is equal to profits.
The conundrum is who is holding the bag when it falls. In strictly financial terms this is referred to as a Pyramid/Ponzi scheme.
Institutional investors understood this game play very well and were able to cash out early reaping enormous gains.
The retail trader was left with the hot potato.
One such firm was Patera Capital, a hedge fund that saw exponential returns having invested $1.7M into Luna and turning it into $170M, a stunning 100X return.
They were able to sell 80% of their Luna holdings, to them the recent crash was ‘unfortunate’ but they are sitting pretty.
Cyrus Younessi, a crypto analyst for Scalar Capital was among the first whistleblowers to cast doubt on Terra Luna.
He predicted a ‘death spiral’ in which the crash of Luna affects Terra.
The inevitable has happened, but it is unknown if any of the experts benefited from their claims by shorting the coin.
With everything said and done, it is ultimately down to what is the next trajectory for Luna.
In the world of contrarian investing, the bad news is good news.
Mass euphoria always leads to negative outcomes in a market. When Terra was in its heyday in 2021, many saw this as an opportunity to jump into the coin and chase it on the way up.
This is the proverbial perilous psychology of human nature, thus many will buy high and sell low. Panic sets in when something falls and many sell out of fear.
The South Koreans seem to have understood this particular shortcoming in people and are taking the road less taken, so to speak.
Massive buying of Luna has been witnessed in the state to a point where regulators have become concerned.
This flow of equity in the coin could jack up the price and it could later fall.
From another perspective, there is never a better time to take a position into an asset than when it is at near zero, basically a no brainer.
The only better time is when it goes negative.
Crypto is a cyclic market and this kind of volatility is nothing new. Economists have argued that without the booms and busts, no development of any kind would progress into being.
The billion-dollar question is whether Luna is of core importance to tech advancement and is sufficiently backed to ensure it will be here in the decades to come.
The answer is given in history when we take a look at the rise of the crypto gold standard, Bitcoin (BTC). Like all others, it has humble beginnings trading for cents on the dollar back in 2009.
It quickly rose to prominence and by 2017 it had reached a peak of $20K.
At this point market mania kicked in, more people sold the coin than those buying, leading to a fallout.
BTC dropped from $20K to $1, losing 95% of its value, Ethereum also followed suit dropping tremendously. At this point, many sold out and termed the crypto market dead.
It is no secret that BTC and ETH have since bounced back fiercely hitting new historic highs. This is the nature of the crypto market and one should brace themselves for this before entering.
Luna has crashed for entirely different reasons which could be both a blessing and a curse.
The problem stems from its primary infrastructure. Terra is only backed by Luna thus exposed to volatility.
The seemingly arrogant founder Do Kwon did not initially address the issue, taunting that he does not debate the poor.
Progress is however being made to mitigate this challenge that ails not only Luna but the entire crypto industry.
Terraform has diversified its interests into other, more valuable reserve assets. This includes the US dollar, bitcoin which holds $2.4B in value and other ventures.
Terra Luna trading chart
As of the 20th of May 2022, Luna is trading at zero-some levels as depicted above.
The decline can be traced to its peak in April last month, followed by a slow downturn and sudden thud.
Luna in its heydays accumulated a lot of momentum attracting massive capital to the coin. The market has been wonky and major indexes have gone under.
The S&P, NASDAQ and other market indices are experiencing their fall since the financial crises.
This is a bear market and we are currently in technical recession with a real predicted hit soon. Analysts posit a 35% chance of a recession by early 2023.
Not all stable coins are created equally and this is the lesson learnt with Terra Luna.
Although other coins have been mired by this they stand to recover soon.
At the moment Luna is dirt cheap, they are about 6.5 million tokens in circulation and they should not be minting more in light of the recent crisis.
Terra is a high risk/high reward play at the moment that needs to be carefully assessed. Theoretically, the price should not drop more than it has made it a fantastic opportunity.
At this point crying over spilt milk is not going to help much. Holders of massive tokens of Luna should get strapped for an interesting ride.
Contingency measures are being taken by Terra to remediate the situation.
The 27th of May is D-day for Luna, as it will reveal the next phase of their operations.
Speculations are they could introduce a new coin, which could immediately pick up the pace.
Even though Luna will not go to the moon anytime soon, a modest hike could mean a huge difference from zero.
Sentiment on Luna
The huge collapse has been infamously labelled as ‘the 2008 crash of crypto’ or better yet ‘Terra’s Lehman Brothers moment’.
One man has emerged as the scapegoat in this fiasco and that is none other than Don Kwon.
He is currently under investigation for running a Ponzi scheme and misleading investors.
Some have called the new Bernie Madoff. The man has been described as a narcissist by employees at Terra and close associates.
He runs the company with an Iron-fist leading to its demise.
Do Kwon pushed for a fixed interest rate as opposed to a free market.
To achieve this, it was partly subsidized by the company. The decision for a high 20% yield to attract investors was paradoxically great and terrible at the same time.
On one hand, it meant more investors would rush into the company generating significant cash flow, but this did not last as it went back in payments to old users thus creating a vicious cycle where new money needed to keep coming for the model to remain afloat.
A further fatal mistake was letting people access their deposits whenever they wished to. A looming danger existed in case of a mass withdrawal all at once, which was overlooked.
Do Kwon had devout supporters who hailed him as a crypto god. It is believed that he hyped the coin via Twitter calling it his dear creation and even naming his daughter Luna.
Other Luna fanatics, or as they classically called themselves, ‘the Lunatics’, were sheer sycophants of the coin and dismissed any critics that came their way.
Frankly speaking, the name of the fanbase suggests they were not as informed.
Mike Novogratz, Chief executive at Galaxy Digital, a huge investor of Luna, got a Luna-themed tattoo to express his undying allegiance to the coin.
He seems to have had a change of heart at the moment and stated the tattoo was a casual gesture and nothing sentimental.
There is a school of thought that suggests the collapse of Luna was market collusion.
A key player in the financial markets, arguably a hedge fund, could have pumped and dumped Luna in a bid to trigger a massive sell-off and bring it down.
A huge mistrust now exists in the crypto market, as stable coins which were supposed to be a shelter against the uncertainty in the crypto market, turned out to be the biggest dark horse.
Other stable coins like Solana, Waves and Avalanche which were competing with Luna have been tainted by the crash. Bitcoin is now at $30k, over -50% below its all-time highs.
But then again, there could be light at the end of the tunnel.
Luna 2.0 has had a negative reception, but other promising options include an acquisition by Binance.
Regulators led by the leftist Elizabeth Warren gave affirmed that the industry should be brought to book. They are no fans of crypto and if they had their way, they would abolish it altogether.
A ray of hope still exists for Luna as major changes coming its way are inevitable. The underlying problem could be reengineered or taken over by competent expertise.
Profits for Luna
Luna was in the take-off phase and did not generate returns. Earnings were mostly derived from the entry of people into the stock and trading crypto.
It did however receive lots of capital and had diversified into many sectors such as sports, it partnered with the Washington Nationals major league.
It also set up a non-profit for which it gave $1B to purchase BTC as their reserve currency. Terra was also partnering with developers in the crypto space who needed funding to get prospecting projects going.
Some day traders have also reaped significant profits over the past week as the turmoil rages. It is showing signs of regaining its position slightly up by a few cents.
Terra UST which was not supposed to fall below the $1 peg is now trading for 10 cents. Terra is proposing to vote on a new method to introduce a new mechanism to their operations.
The team is trying to restore its position and is in close contact with Binance.
One solution coming up is making two coins, the Terra classic which is the old coin and the new Terra Luna. They are calling this the Terra Ecosystem Revival plan 2.
This Luna fork plan to split into two is pretty viable as many others like Ethereum have done so. They still need to substantially reduce supply.
Luna is more of a capital gain than a cash flow asset, In terms of return.
Future of Luna
Everyone is pondering where Luna will go next.
It has come out clear that in the world of crypto that being backed by huge players will not warrant a bailout.
Luna’s options are still plausible. They can either sell out or establish a better system. The latter seems to be a hard path since their ecosystem is almost down to ashes.
Binance CEO Zhao has openly stated that forking will not work.
He might be looking out for their interest in an acquisition, but this remains unknown. Luna is held by millions of investors and even though they have been badly hurt by the crash, they will be expecting a recovery.
At this point selling at zero when one bought at the peak is a devastating defeat. Luna is not out of business and many know the best chance they have is to sit back and see what unveils.
The mass buying by the South Koreans will portray a positive outlook of Luna.
Further, huge firms have also lost big in the collapse. They are willing to stay in the long haul to see that they at least even their losses.
Luna will rebuild back better for the huge network that was reliant on them. It has already seen its worst and nothing more could go awry.
Major stakeholders have come together to discuss its revival and it’s a matter of when will it get back on its feet. Although it could not explode once again, it will rise slowly and soundly.
If Luna is to succeed in the future, crucial management changes will need to happen. The founder Do Kwon got his head clouded with fame and could not act rationally.
Voting polls regarding the new chain have been turned down by 92% of the Luna crypto market. A fundamental shake-up is necessary to get Luna running again.
He is not to blame entirely for the mess, but his arrogance has played a huge role in the fall. He currently faces allegations from the SEC for the collapse. He also faces a $78 million fine for tax evasion.
Terra will still be here considering they are one of the largest players in crypto, they hold more bitcoin than Tesla and still have a market capitalization of $600M after the fall.
Moving forward the UST mechanism will be collateralized.
Luna has been temporarily suspended by major exchanges like Binance and Coinbase after the crash. If the recovery plan is successful, they might be back on. Investors can buy Luna on eToro.
Luna is already showing signs of rallying even whilst trading at zero. Many have anticipated that this could be the next Shibu Inu!
Overall Verdict on Luna
Luna is a remarkable opportunity that is a blessing in disguise. In a market bubble where virtually every asset is inflated, collapses like this offer a game-changer.
This is the chance to obtain a potential multi-bagger for almost nothing.
Every other market is at its peak and buying into them is not so wise.
There could not be a better bargain at the moment than Luna. Fortunes stand to be made if the situation is carefully assessed.
Going by the averages and market expectations, they suggest Luna is a strong sell.
This is the classic pervasive mentality that leads to buying high and selling low. Why would anyone sell at this record low price?
For smart investors, it’s shopping time!
That’s what all the people say
You’re riding high in April, shot down in May
But I know I’m gonna change that tune
When I’m back on top, back on top in June
– Frank Sinatra
If Elon Musk steps in to save Luna, just this news will raise the price of Luna by June!
Update from @stablekwon Twitter account owner of Luna, Do Kwon: 22 May 2022
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