he sudden crash of the Terra stablecoin, Luna and UST has been a very painful experience for the entire finance and crypto world. Despite the overall crypto market has been in a good trend, the turmoil of these startups still has a large impact on the entire crypto market. To some extent, the recent turbulence has led to the collapse of the stablecoin market.

Just a week ago, Terra Luna was ranked top 15 in the entire altcoin list based on crypto market cap. And now today it's completely wiped out. So in this article, let's talk about eight lessons we can all learn from Terra Luna crash and how to carry these lessons, moving on to the future and to better prepare ourselves for the upcoming financial turbulence. And let's get into it right now.

KSI crypto losing Terra Luna

1. Quick & Unpredictable

Black Swan events like this can happen really fast in a really short period of time and majority of the times, it's unpredictable. See the chart below (Terra Luna chart since 2019). Each candlestick represents one day of the data. You can see everything happened within 24 to 48 hours.

terra luna crypto crash chart

And that's why really famous and successful hedge fund manager Ray Dalio always has something called all season/weather portfolio. Meaning he structured a portfolio in a way that can handle all sorts of market conditions. No matter if it's crash or market recessions, his portfolio will perform.

ÔÇťImagine that in order to have a great life you have to cross a dangerous jungle. You can stay safe where you are and have an ordinary life, or you can risk crossing the jungle to have a terrific life. How would you approach that choice? Take a moment to think about it because it is the sort of choice that, in one form or another, we all have to make.ÔÇŁ - Ray Dalio
ray dalio all weather portfolio strategy

2. Big Projects May Fail Too

Big project like Terra Luna, even though they're in the top 10 or top 15 in the entire crypto market cap, it still has potential to fail. Let me give you another example. Here's a list of top 15 altcoin back in 2013, almost ten years ago. Besides Bitcoin and Litecoin, other top 13 coins are all gone from the list today. That shows you that in the crypto world because of the volatility, because of the project rise and die. There's no such a thing called a guarantee.

altcoin list 10 years ago

A common misconception about cryptocurrency is that only small projects fail. This is not true. Even projects that are in the top 10 or top 15 of the entire market cap can also fail. If a project is not well thought out, it will fail. While we hope that Terra Luna will make it, we do not know for certain. It is not sure that this project will be successful in the future. Time will tell!

3. Don't Rely on Crypto Exchanges

When crisis or crash happens like this, you really cannot rely on crypto exchanges alone such as Coinbase or Binance.

These exchanges are really centralized. In Black Swan events like this. They all have a mechanism in place to prevent from money leaving their exchange in order to prevent from their platform being crashed, they will probably do something such as blocking the withdraw or delaying the withdrawal or even slowing down the withdraw in order to control the dip of this market crash.

Give you an example: Binance made an announcement on May 12, mentioned that from this period of time, withdraws on Terra Luna network will be temporarily suspended due to the high volume of pending withdrawal transactions.

binance terra luna annoucement

Later on. Obviously they have to recover the withdrawal process, otherwise people will get really pissed off. Again, not blaming on these exchanges because they have to follow their own protocol in order to survive from such a crash.

If you truly want to own your digital assets like cryptocurrency, you cannot leave it on the platform like exchanges. You want to move it off from the exchanges to your hardware wallet or cold storage. So this way you have 100% control over your digital assets and tokens.

ledger hardware wallet

4. Not All Stablecoins are Created Equal

Not all stable coins are stable now. The top stable coins such as USDT, USDC or BUSD (Binance version of the USD Stablecoin) are all assets backed stable coins.

These assets, including Treasuries or bank reserves. They are not algorithmically based stable coin.

USD stablecoin reserves
Image credit: ledgerinsights.com

However, Terra UST utilizing something called Arbitrage in order to maintain that one to one peg to the US dollar. As you can see here, the stable Coin UST is supposed to be at one point and right now it's at $0.08. That is a 99.8% crash down where supposed to be $1.

So we can simply conclude that not all stable coins are created equal.

Terra Luna and UST arbitrage
Image credit: research.thetie.io

5. Don't Over-Leverage

Don't over leverage Unless you can handle the downside. A lot of day traders or crypto investors like to actually do margin trading or leverage to maximize their profit margin. However, it will make you overexposed to the market when a sudden event like this happens, it can literally wipe out your entire account. In fact, over-leveraging is one of the most significant reasons why a large number of traders fail.

6. Who's Swimming "Naked"?

Warren Buffett famous quote goes: 

Only when the tide goes out do you discover who's been swimming naked.

The real value of these digital assets will be known or revealed during this crisis time. Think about this. There's over 100 projects built on Terra ecosystem.

Just because a project has big investors behind it or venture capital or institutions doesn't mean it will succeed for the long run.

terra luna ecosystem
Image credit: 10baggerclub.com

7. Learn Before Investing

Don't invest into the projects you have no clue about and always do your research and due diligence to learn about the project first. Each one of these projects has the following features:

  • Founder, Developer, Team
  • Tokenomics
  • Infrastructure
  • Mining &┬áBurning Mechanisms
  • Investors, Instituions

There's going to be a team or group of people behind the project, which means you need to go really learn and study these people or a team of the project. And there's going to be tokenomics about the token and infrastructure of their project, mining and burning mechanism and maybe some investor or group of investors behind a certain projects.

bitcoin vs dollar

There's around 19,475 total coins in the entire crypto industry that's listed on CoinMarketCap. Every day there's going to be new coins launched to the crypto industry, so that is going to create lots of confusion for people.

Good lesson to learn here is don't follow the trend or hype of the marketplace. Always do your due diligence to study a certain project first before you put your hard earned money into these crypto tokens.

8. Trust in a Project is Very Important

When the crowd us the people, when we lost our trust with certain tokens or projects, the price will truly reflect itself.

The reason why Bitcoin went from $10-20 back in 2008, 2009 all the way up $60-65k and came to down to $30,000 at the moment. That is because us as a society or people or the mass we agree that Bitcoin is valuable. When we have a mutual agreement like this the price will certainly go up.

bitcoin and stock return chart

On the other hand, if a project founder is calling out people poor on social media like Twitter, that's probably another red flag.

When people lose trust into these founders or these projects the project will crash and the price will dip.

terra luna Do Kwon tweets

Final Thoughts

So that sums up the entire eight lessons learned from Terra Luna USD crash. If you had invested into the Luna prior and if you lost your money I'm sorry to hear that many people have lost a lot of money in the crypto industry because none of this is predictable event so hopefully these lessons can carry on can help us to be more mature when it comes to crypto investing.

Make sure you share this article among your friends and family before they invest into their hard earned money into crypto industry which is super volatile and risky. And If you enjoyed this post I'm going to leave another article below:

Michael Saylor: The Bitcoin Billionaire Who Owns 17,732 BTC

That is basically Michael Sailor investing everything that he has into Bitcoin and something really interesting and hopefully you enjoy that.

I'll see you guys in the next one.



Posted by
Tario Sultan

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