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Thursday, May 26, 2022

Cryptocurrency panic takes over the market after the crash of the moon: why are investors fleeing?

Latest NewsCryptocurrency panic takes over the market after the crash of the moon: why are investors fleeing?

The future may be too far away for some cryptocurrency investors. The collapse of a large part of digital currencies in recent days has cast doubt on many of those who prophesied a bright future in which they would be destined to replace traditional money and destroy the monopoly of central banks. The virtual disappearance of the moon, which suffered one of the worst fiascos in the industry, dropping from $20 billion to near zero in just a few days, left a trail of casualties and contagion for major cryptocurrencies: Bitcoin came down 17% in just five days, and Ethereum, second in of significance, 23% — both rebounded more than 10% this Friday in a highly volatile environment.

Why did they fall?

The trigger for the crisis was the loss of parity with the dollar stablecoin TerraUST. This stablecoin was linked to the US dollar through an algorithm that proved to be ineffective, which immediately set off a domino effect that brought Luna, the sister currency, to the forefront and infected many others through loss of confidence. Enrique Moris, a professional investor in the stock market and cryptocurrencies, thinks this is normal. “Panic spread and logically the whole market was infected. Bad comparison: if Facebook or Apple drops 99% tomorrow, the same thing will happen and people will reconsider their investments in other technologies. However, he believes that over time the market will make its own adjustments. “Just because it happened to Luna doesn’t mean it will happen to other cryptocurrencies. They sell bitcoin even though it has nothing to do with it,” he says.

Is this the beginning of the end of cryptocurrencies?

All together, cryptocurrencies are worth $1.2 trillion, according to CoinMarketCap, so despite the setback, they still have a capitalization equivalent to that of Amazon. In the case of bitcoin, it is now trading at almost $30,000, which is in line with summer 2021 levels, but the rate of decline is worrying. Thus, the so-called crypto crash of our days, although it leads to a loss of trust, does not mean its end. In fact, bitcoin fell 80% in 2018, which is much higher than it is now. Later, he was able to fully recover and set new heights. Its advocates are clinging to these precedents in the midst of a selling panic, although history should not repeat itself. Even if it manages to recover and return to highs in the future, many investors will lose along the way because, as economist John Maynard Keynes pointed out, “the market can stay irrational longer than you can stay solvent,” meaning there may be those who need to withdraw money before covering their expenses or because they consider excessive losses.

He thoroughly knows all sides of the coin.

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In difficult times like the current one, one of the most recurring battle cries among small investors betting on cryptocurrencies is to hold, that is, weather the downpour without selling. Maurice argues that the Luna case teaches a lesson in this regard: “Keeping up to ten years the thesis that tomorrow you will make more money if you are patient does not work in the crypto world, because there are projects that can drop by 99%. % as it happened to the Moon. The lack of financial culture in some cases is the cause of large losses for small investors. “There are people who are new to the world of investment, and since the project is in the top ten, it is already taken for granted that it will be worth more tomorrow,” Maurice discovers.

Additional Information

Point correction or collapse?

The ups and downs of bitcoin and other cryptocurrencies are not new. Since its birth more than a decade ago, difficulties in determining its real value have caused strong fluctuations. In the beginning, strong revaluations helped support the legend that it was a relatively easy way to increase savings. But past gains do not guarantee future ones. In its current value, there are unconfirmed expectations about its future use and certain doses of what among small investors is called FOMO, an abbreviation in English of the fear of missing out, in this case a hypothetical juicy profit. The difference in opinion is enormous. Among the experts, there are those who believe that the only reason they are growing is because someone else is buying them, and others who see them as a store of value that is just emerging. When bitcoin peaked around $68,000 in November 2021, the latter seemed to be strengthening, but now the opposite is true.

What to do with those who lost?

Thousands of small investors who have entrusted their money to Luna or TerraUST have no way to get back what they have lost. Cryptocurrencies are now high-risk assets moving in something like the financial Wild West. And the messages of those who have seen what has been accumulated for months or years evaporate in a few days on networks such as Twitter or Reddit. The case can indeed stimulate a greater interest of the authorities in regulating its activities. US Treasury Secretary Janet Yellen made a request for this in recent hours. And the European Union is finalizing work on the regulation, which should be ready by the end of the year.

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Source: elpais.com

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