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Crypto Market: Will ‘Buy the Dip’ Be a Good Strategy After LUNA Coin Tragedy?

For the last few months, the crypto market is facing the craziest weekly losing streak in an absolute free fall. The recent LUNA coin crash and then continuous crypto falling has caused the market to lose over $200 billion in just 2 days.

If you’ve been following the Bitcoin price news, you must know that the largest cryptocurrency by market cap has plunged to its lowest point since December 2020. Bitcoin plummeted below the $30,000 mark multiple times in the time, sliding to around $26,000 on May 12, 2022. However, BTC has recovered somewhat since then and is trading at around $30,000 again.

But Bitcoin isn’t alone feeling the heat. The prices of other top leading cryptocurrencies like Ethereum (ETH) and Solana (SOL) have experienced double-digit drops during the same time.

Image Source: Coin360

A market capitalization that was over $2 trillion just two months ago has dropped to roughly $1.15 trillion (falling nearly 19% between May 11 and May 12). 40% of Bitcoin investors have lost their money on their investments.

So, What Went Wrong with the Market?

“The collapse of the Terra crypto (LUNA) and its associated TerraUSD stablecoin, aka UST.”

There are 2 interconnected stories:

That of LUNA coin and UST stablecoin, both of which are part of the Terra Blockchain.

  1. The UST coin is supposed to have a constant value of $1, but it was de-pegged on May 9 and fell to be worth only 13 cents.
  2. Then there’s the LUNA coin, the ecosystem’s beating heart. Its value has plummeted in one of the most spectacular cryptocurrency crashes ever seen.

The LUNA coin has dropped from $116 in April to a fraction of a penny.

Image Source: CoinMarketCap

On May 8, the system collapsed as $2 billion in UST was pulled all at once, with hundreds of millions sold. The method for exchanging UST for LUNA coin couldn’t keep up with the de-pegging of the UST to 98 cents. As a result, investors lost faith in the system, causing the crypto market to fall.

Hundreds of millions of UST were dumped onto numerous exchanges, causing the Luna Foundation Guard, which controls Terra crypto, to declare intentions to sell $750 million in Bitcoin to restore the UST peg to $1.

Terra has been collecting large quantities of Bitcoin for its reserves for quite some time. In this situation, Bitcoin serves as the Terra ecosystem’s reserve currency.

Bitcoin price news has been hitting the internet as Terra intends to give out hundreds of millions of dollars in Bitcoin in order to restore the peg to $1 while improving liquidity. Still, the price of UST continued to fall, bringing Bitcoin down with it and then the entire market altogether.

Mike Boroughs, the co-founder of crypto investments firm Fortis Digital, said –

“This is historic for the crypto markets. This is a defining moment for the space due to its size and impact in terms of the number of people that lost substantial value.”

Many Projects Came Forward for Terra’s Rescue

Following the LUNA coin collapse, a number of developers have been left in uncertainty.

These Terra-based projects may be able to save their communities and initiatives by migrating to other networks.

Polygon

Polygon Studios‘ CEO Ryan Wyatt tweeted that Polygon is working with a number of Terra projects to aid them in transitioning to the Polygon Network, which should benefit both the Polygon (MATIC) community and Terra projects.

According to Wyatt, the Polygon community is “willing to welcome the developers and communities of these Terra projects.” Polygon would also provide the funds and resources needed to support companies in their migration.

Sandeep Nailwal, the founder of Polygon, contributed his two cents by outlining the best possibilities for Terra projects. He recommended that community initiatives in need of a common chain may use Polygon’s proof-of-stake (PoS) network. zk-Rollups will be available on the PoS network soon, according to Nailwal.

Fantom Foundation

Fantom (FTM), a Layer-1 blockchain project, has also shown its support for the Terra community, claiming that it is willing to help any project or developer that wants to leave the Terra network. Fantom’s team also laid out a grant program to assist with integration, connections, and marketing.

VeChain

The VeChain team has offered Terra blockchain developers up to $30,000 in migration assistance.

Reef

Reef‘s CEO, Denko Mancheski, said that Terra projects seeking “a new home” might receive $200,000 in investment, which could be used for tech onboarding and community support.

Following the events of last week, these initiatives will undoubtedly aid in the recovery of numerous Terra projects. Terra’s founder, Do Kwon, finally stood up and proposed a recovery plan that has left the community to make fresh LUNA price predictions. One of the proposals being discussed is the implementation of a hard fork in the Terra network.

What is Terra’s Revival Plan?

Since UST was de-pegged, terra developers have had a difficult week. The Luna Foundation Guard stated that its bitcoin holdings had dropped from 80,000 (about $2.2 billion) to just 313 ($9.2 million).

The remaining funds will be used to “compensate remaining UST users, starting with the smallest holdings.”

Meanwhile, Do Kwon, the CEO of Terraform Labs, has a divisive plan to revive LUNA.

The Terra team is continuously working on Terra’s revival plan and has been making innumerable updates about the LUNA coin. These updates are public, and anyone can check them online.

This Crypto Winter May Not Be So Cold As It Looks

Is crypto going to crash even more?

Though things may appear to be gloomy, it’s crucial to remember that bearish periods bring long-term value to the sector by allowing it to generate new inventions to propel things forward.

The First Sustained Crypto Winter

Between 2009 and 2013, Bitcoin (at the time, the sole cryptocurrency) saw multiple ups and downs, with sharp climbs and dips and a lot of horizontal movement.

However, in late 2013, two pivotal events would fundamentally reshape the crypto landscape forever.

  1. The FBI shut down Silk Road, a popular darknet drug market while raiding the site’s founder’s San Francisco apartment and charged him with drug trafficking, internet fraud, and money laundering. Silk Road had spent two years establishing global popularity for its pioneering strategy of connecting consumers and sellers while running only on Bitcoin when it was launched in 2011.
  2. Four months later, Mt. Gox, a Tokyo-based exchange, abruptly halted its operations. The exchange had become responsible for 70% of all Bitcoin transactions on the planet by that moment. As a result, Mt. Gox’s global customer base was lost hundreds of thousands of Bitcoins, which were valued at hundreds of millions of dollars at the time (and much more today). Traders are still fighting for justice in court, but the public is still unsure whether these traders were victims of theft, fraud, mismanagement, or all of the above.

The price of Bitcoin continued to decline after that, falling by 85%.

Innovation Effect

A year after the collapse of Mt. Gox, Vitalik Buterin, a Canadian teenager who had spent the previous year brainstorming something called Ethereum, brought his vision to life, expanding Bitcoin founder Satoshi Nakamoto’s emphasis on decentralized peer-to-peer transactions and spinning their ideas into multiple webs of finance and computing.

And, inspired by the lessons learned from having a single exchange responsible for customer funds, Trezor created the world’s first crypto hardware wallet, removing the risk of corporate incompetence by putting investors in responsibility for their own assets’ custody.

The Second Crypto Winter

By 2017, crypto has resumed its full-fledged bull run. ICOs (Initial Coin Offerings), in which a firm raises funds by selling its crypto tokens to the general public, would define that year.

In May of that year, an ICO for Brave, a little-known web browser project, raised $35 million in under 30 seconds.

ICO volumes surged to $2.3 billion by October 2017 because Ethereum adopted the ERC-20 token standard, which allowed independent crypto projects to begin without having to build their own separate blockchains.

Then the floor gave way. Due to the lack of regulation around ICOs, the investment instrument quickly became ripe for fraud and scams. By early 2018, about half of all ICOs launched in 2017 would be dead. The US Securities and Exchange Commission swiftly swooped on the industry, charging that crypto businesses were selling unregulated, unlawful securities to the public. Facebook, Twitter, and Google eventually prohibited any marketing for ICOs on their platforms.

Bitcoin’s price dropped from roughly $20,000 to $3,000 between December 2017 to December 2018. Things appeared to be improving in the summer of 2019 when Bitcoin rose back up to $12,000, but the beginning of COVID-19 months later drove prices plummeting to $4,000.

The Third Wave

During the crypto winter of 2018-2020, an increasing number of creative ventures began to appear. Uniswap, Ethereum’s first decentralized exchange, was proposed by Vitalik back in 2016, and it would launch in the midst of the crypto winter. Traders could pool several crypto-assets together to trade against for the first time on the platform, rather than matching individual buyers and sellers via traditional order books.

Meanwhile, an online marketplace called OpenSea, which specialized in something called NFTs, gradually grew in popularity. OpenSea was managing over $5 billion in monthly transactions by January of this year, and the company was recently valued at over $13 billion.

And niche initiatives like SolanaAvalanche, and Aave would debut with minimal fanfare before becoming big names in the crypto world.

Is it a Good Idea to ‘Buy the Dip’?

The “buy the dip” idea is based on the assumption that price dips are only temporary fluctuations that will come back themselves over time. Dip buyers expect to profit from price drops by purchasing at a discount and reaping the benefits when prices rise again.

Buying cryptocurrencies at any price – less alone a downturn that could turn into a long-term trend – is dangerous because crypto markets are volatile. Prices may rise to earlier levels, but they may also fall even further, putting your investment at risk.

If history repeats itself, the current drop (or crash, depending on your perspective) could rebound like it did last year, when prices plummeted to comparable lows before recovering and even peaking in the autumn. Of course, they could be wrong.

Bitcoin price news, in particular, has demonstrated some seasonality to date, with prices falling to varying degrees in the spring before rising in the early summer. However, as with any investment, past success is no guarantee of future outcomes, especially in the volatile world of cryptocurrency.

Praveen Kumar, the founder and CEO of Belfrics Group, said,

“These are great entry levels for investors to start building a robust portfolio in cryptocurrencies. In fact, investors should continue to buy the dip from hereon as the long-term fundamentals of some well-known cryptocurrencies like BitcoinEthereumLitecoin, etc., are still fairly strong.

Dileep Seinberg, the founder and CEO of MuffinPay, thinks otherwise,

“..regulations will promote the value of promising good projects in crypto. But we need to wait for a few months. The dip has always benefitted crypto investors. But this time, it needs to HODL for a long to see the benefit.”

After the LUNA Coin Incident, What to Expect from the Market?

Traditional and non-traditional markets are all cyclical. The good times must come to an end at some point. Many projects in the crypto ecosystem may not make it through the upcoming crypto winter.

A crypto winter’s silver lining is that it provides the industry time to step back and assess its own flaws, allowing it to develop new safeguards against future implosions. Terra crypto‘s experience recently was unpleasant but also enlightening to make fresh LUNA coin price prediction. The project’s structure had some drawbacks. The industry now recognizes that a new model is required.

Decentralized finance (DeFi), DAOs, and smart contracts were all pipe dreams during the last crypto winter. NFTs were still limited to crude drawings with no practical application.

And once the market takes up again, we might just have the next Ethereum, Uniswap, or OpenSea on our hands, not to mention some new notion that hasn’t even been thought of yet.


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