This content is sponsored and presented by Empiricus.
In the last three days, the cryptocurrency Earth (MOON) lost almost all of its market value. The asset already cost around US$120 at its all-time high, but this Thursday (12) it was traded for around US$0.009. The effect of this drop was felt by the entire market, mainly by the Bitcoin (BTC).
The accumulated loss is so great that the data aggregator CoinGecko already records 100% loss in the last 7 days.
The main catalyst for this drop was cryptocurrency. EarthUSD (UST), the protocol’s stablecoin that was supposed to maintain parity with the dollar. The asset plummeted and reached the mark of US$ 0.29. At the time of this writing, the coin is trading at $0.59.
Bitcoin also ‘bled’ with this move. The largest cryptocurrency in the world reached the lowest level of the year at 4:20 am this morning, reaching the range of US$ 26 thousand dollars.
Many investors are still trying to understand what happened to Luna to dust in less than 72 hours. As all this movement involves very technical aspects of the protocol, it is difficult for lay people to understand what is happening.
Because of this, analyst Vinícius Bazan decided to explain didactic for Money Times readers, to clarify in a simple way what’s going on and give new instructions on how to position yourself now.
You will understand once and for all, easily and no technical termswhat is happening in the crypto market right now.
What is the Earth protocol? understand in a simple way
First, it is important to understand what the Terra protocol is and what it is for.
Earth is a protocol of stablecoin creationwhich works from the interaction between two cryptocurrencies: TerraUSD and LUNA.
“The term stablecoin literally means stable currency. This is a class of cryptocurrencies that must maintain parity with the dollar. That is, the purpose of these coins is to have the price always locked in US$ 1.00″explains Bazan.
This is a way to create a bridge between the traditional market and the cryptocurrency market. It is also a form of protection against market volatility.
The main stablecoins on the market maintain some form of parity with the dollar in a traditional way, mainly through investments in US treasury bonds.
But since the purpose of the cryptocurrency market is to be decentralizedthere is still demand for a fully decentralized stablecoin that sustains parity with the dollar without relying on interactions with the traditional market.
It is for this purpose that the Terra protocol was created. TerraUSD (UST) promised to maintain parity with the dollar without depending on the custody of dollars or treasury bonds.
How is this possible?
How does this stablecoin creation work? Why did this process fail?
The protocol mechanism works like this: to create new USTs it is necessary to burn LUNA at the equivalent market value and vice versa.
“For example, if there is a demand for 10 USTs (the equivalent of US$ 10.00) and the price of LUNA is at US$ 10.00, it is necessary to burn a unit of LUNA to create these USTs”, explains the analyst .
This movement tends to value the LUNA cryptocurrency. After all, the decrease in the supply of tokens tends to increase the price.
Furthermore, the role of the Anchor Protocol. Basically, this is a decentralized finance (DeFi) platform within the Earth’s ecosystem.
Anchor offered 20% annual return to users who made staking of UST. In case you didn’t know, staking is a form of “cryptocurrency savings”, where you lock your assets into a protocol to receive an interest payment.
This 20% payment became interesting for several investors, which boosted the demand for UST and, consequently, the appreciation of LUNA. From the project’s creation to its all-time high, LUNA has gained 3,544%.
But this system of creating stablecoins would come to present problems.
The problem started on TerraUSD and affected the entire market
The main problem with this entire ecosystem is that the UST parity was very much based on supply and demand.
“For example, suppose the price of UST drops to US$ 0.90. Even with a market value of less than US$ 1.00, 1 UST is still worth US$ 1.00 in exchange for LUNA. That is, a user could buy 10 USTs for US$ 9.00 in this scenario and exchange for 1 LUNA, which is worth US$ 10.00, and could sell this LUNA and earn US$ 1.00”, explains Bazan.
This mechanism works for small fluctuations around $1.00. But things can get out of hand when selling pressure gets too high – and that’s exactly what happened.
On Saturday, May 7th, there was a millionaire exchange between UST and USDC. The UST price was not affected much, but it is worth remembering that, in a market of widespread fear like the current one, any spark is enough to start a fire.
This was the first piece that caused a giant domino effect across the entire crypto market.
Over time there were more and more UST selling orders, causing a selling pressure that the LFG (company behind the protocol) could not handle.
The mechanism started to fail and LFG was forced to dump more than 80,000 bitcoins on the market to try to hold the UST price. Did not work.
After that, the company started issuing LUNA units to burn USTs, which caused currency inflation and further contributed to its devaluation.
In short, this is what happened to the market this week. “It’s safe to say that the last 72 hours were probably the worst of this entire current bear cycle,” concludes Bazan.
Does Bitcoin have hope after this?
Faced with this bloodbath, it is common for investors to feel fearful, not knowing what to do. Because of this, Bazan left some instructions for Money Times readers.
First, Bazan believes that even in the face of confusion, there are positive consequences.
“What I liked the most was the resilience of Bitcoin and Ethereum at that moment. The two biggest cryptocurrencies on the market suffered very little, considering the very high level of panic that was spreading.”
You need to put things in perspective, with a focus on the long term. It is worth remembering that throughout this movement, Bitcoin hit a low of $26,000.
Less than two years ago, in 2020, Bitcoin reached its old all-time high, the highest price of all time until then, exactly in the range of US$ 26,000.
In other words, the likely worst price of 2022 would be considered the best price in 2020. In 2020, investors would be celebrating seeing Bitcoin at $26,000.
Of course, things have changed and investors are now more demanding about the behavior of the asset. But it’s important to look at the picture in a larger, long-term perspective.
Secondly, at this point the analyst’s recommendation is that it is more important to pay attention to theses than to prices. Bitcoin, for example, remains the pivot of a technological revolution unprecedented in human history.
So, if you remain confident in the future of this technology and this decentralized economy, you shouldn’t just look at market sentiment as a whole. The market tends to be irrational and pay a lot of attention to short-term events.
In fact, it is precisely because of this irrationality that there may be a good opportunity to buy some assets now.
‘There was a disproportionate punishment on some assets’; understand if it’s time to buy or run away
That’s because, according to Bazan, the market reaction was quite disproportionate to the events. We saw assets that had nothing to do with this issue dropping 50% or even more.
“Several assets in our portfolio had nothing to do with it and suffered a sharp drop. Of course, there is always room for further declines, but I believe that, at current prices, you can buy excellent projects at an absurd discount.” – Vinicius Bazan
For you to have an idea, one of the cryptocurrencies identified by the analyst as having high potential for the long term suffered a drop of 54.4% in the last 7 days. The current price is in the range of $0.15 – the lowest in the history of this coin.
This shows how the market can be irrational and punish projects that have not had any change in their fundamentals. This cryptocurrency, for example, is part of a game that hasn’t even been released yet.
Now again, think in a bigger picture, not in days, but in months or years. When the game is released, in 2023 or 2024, the market may be in a much better mood (at least better than the current one, which is the worst in recent times).
By buying this cryptocurrency at current prices, at historic lows and in the worst mood of the market, you have the chance to invest in a good project for a very low price. A simple turn of the hand in the market can put a good amount of money in your pocket.
We don’t even need to waste time with assumptions to get a sense of what can happen. There are real data that support this thesis.
For example, the last moment of good mood in the market came late last year, when Bitcoin hit an all-time high of $69,000. At that time, the price of this cryptocurrency reached $2.78.
That is, at current prices, if the cryptocurrency simply regains this price level, its appreciation would be 1,753%. A multiplication of more than 18x on the money invested.
Nothing guarantees that this will happen. In the investment world, past earnings are never a guarantee of future earnings. It’s just a data for you to get an idea of how fast the scenario changes in the cryptomarket.
To avoid getting hurt, always invest an amount that you can afford to lose.
Of course, there are many risks involved in this operation. We are talking about a tiny cryptocurrency in a highly volatile and in a bad mood these days.
There is a good chance that these and other cryptocurrencies will fall and go through some troubles before rising again. However, even if we are not yet at the historic low, current prices already represent an excellent opportunity for capital multiplication, according to Bazan.
Furthermore, Bazan reinforces the most basic guideline of the crypto universe: never invest what you are not willing to lose.
“The LUNA case was very good to remind everyone of the risks of this market. One of the biggest cryptocurrencies in the world went from US$ 100 to 0 in a matter of days. That’s why my team and I reinforce: never invest money that you’re not willing to lose,” says Bazan.
And Bazan goes further: even investing little money, there is still a chance to pocket big profits, especially at times like the current one.
“We selected a tiny cryptocurrency wallet precisely so the investor doesn’t have to put in a lot of money. Investing in these projects can be the equivalent of lending Steve Jobs some money when he was still doing Apple in a garage. R$ 1,000, R$ 500, even R$100 is enough to make good money here”, concludes the analyst.
Finally, Bazan leaves an invitation to the readers of Money Times. If you are willing to take risks and want the chance to make a fortune in the bloodiest moment on the market, the analyst wants to offer you a cryptocurrency portfolio with immense multiplication potential.
In the current market moment, the biggest investors are with blood in their eyes, buying everything from the impatient and accumulating cryptocurrencies that could be worth a lot in the future. You can be part of this group right now.
To learn how to access this cryptocurrency wallet, just click on the link below. Instructions will be sent directly to you, free of charge.
This content is sponsored and presented by Empiricus.