If you had invested $122 in the cryptocurrency LUNA a month ago, you might have been confident at the time that you made a reasonable bet, but the value of Luna has since fallen dramatically.
In a report published by The Conversation,
Gavin Brown, Richard Whittle and Stuart Mills said Luna wasn't the only casualty in a week in which the value of cryptocurrencies fell 30%, and while some of these coins recovered to some degree, what happened still represented a 7-day total loss of more than 500 Millions of dollars, raising existential questions about the future of this market.
The authors explained in their article that the reason for this collapse is likely to be the financial “attack” of the stablecoin “TERRA”, whose value is supposed to match the US dollar, but it is currently trading at only 18 cents, and at the time. Later her partner Luna broke up;
Such an attack is considered very complex, and involves placing multiple trades in the cryptocurrency market in an attempt to produce certain effects, which can provide the attacker with significant gains.
In this case, these trades caused the value of Tera to drop, which in turn caused the Luna coin to drop as well, and once you noticed what happened, it caused a panic, and in turn led to large withdrawals in the market, which then caused more panic;
The report says that some stablecoins are largely dependent on perception and trust, and once that is shaken, they can show significant declines. While making sure to be denominated by another asset.
The writers pointed out that the effects seen this week extended to cryptocurrencies as a whole, creating losses in a single day similar to what happened on “Black Wednesday” of cryptocurrencies (Black Wednesday is the day that speculators caused the collapse of the value of the pound in 1992), or could To say it is even worse than it is to the point that the leading stablecoin Tether has lost the asset that denominates it and depreciated to 95 cents on the dollar, which imposes an urgent need for regulation, asking: If the stablecoins are not already stable, where is the safe space in the world Cryptocurrencies?
Confidence in cryptocurrency
The writers stress that the future of cryptocurrencies will depend on how investors respond to these fluctuations, as the market has already witnessed a state of panic and despair, and a race to reach the banks, but in light of these influxes that the banks are witnessing, customers tend to worry that their banks will not be able to give them their money Instead of worrying that their money has become worthless, pointing out that with the stock market crash, this comparison becomes more accurate, as investors worry that the shares and shares they own will soon become worthless.
So far, the reaction left by this collapse indicates that a large portion of cryptocurrency owners view their investments in a similar way, and regardless of historical price volatility, there is a basic assumption often made by the investor: that the price of the asset will rise, and will continue to rise, and therefore The investor does not want to miss this opportunity, and as soon as he notices the rising value of the assets and believes that they are stable, he invests.
As a result of the initial successes that the investor often witnesses, the pressure created by social media and the fear of losing “inevitable” gains, this pushes him to invest more.
Simply put, many will invest in cryptocurrencies because they believe that it will make them richer, but there is no doubt that this belief has fallen due to what happened recently, another motivation to invest in cryptocurrencies may be the belief in their changing nature, which is the idea that cryptocurrencies will eventually dissolve It has replaced traditional methods of financial exchange, and therefore investors believe that any increase in the value of the cryptocurrency is evidence of the increasing strength of this type of currency compared to traditional money, and in turn, the significant decline in the value of the cryptocurrency is not just a financial loss, but an ideological loss.
at the same time;
This ideological stance creates a group of investors less likely to sell in the face of a hard landing, and it is this group that may provide hope for the crypto sector.
The authors point out that in the event of the collapse of the existing stock exchange, we usually talk about the return of the “core value”, and it is often assumed that the basic value of cryptocurrencies is zero, however there are often some basic values that determine the extent to which investors believe in them, it may determine the size of a group Investors, who own the cryptocurrency for their belief in its long-term future and new profits, that core value of cryptocurrencies.
Indeed, according to the report, we can divide cryptocurrency investors into different groups with different motivations, which would enable us to better understand the behaviors we see, but the advice that any financial advisor would give you, whether in cryptocurrency or any other market, is that nothing is guaranteed in this area.