Luna crash has been throwing thunderclouds on the news of the cryptocurrency industry lately, and for completely the wrong reasons. Investors are full of doubts and questions, entrepreneurs are worried. The price of bitcoin has dropped by as much as $17,000, and Ethereum has followed suit along with other trendy coins.
Do investors who have invested their savings in digital currency incur long-term losses, or will they be able to catch up after a while? Depending on the digital currency, some investors may eventually catch up, while those who invested in various unknown tokens, expecting greater returns, may find themselves in long-term losses.
This sounds gloomy, which is why industry leaders call this constant drop in crypto winter. In a recent conversation with icarbon CEO Joshua Fernando, we discussed what, when and how the digital currency collapsed.
What is the crash of the Moon?
UST (aka Terra), a currency designed to change the value of the US dollar, allowing users to exchange 1 UST for the equivalent of 1 US dollar in another currency called Luna, and vice versa. The protocol called anchor assumes ownership of approximately 75% of the OST rolling stock, which gives depositors 20% of the OST profit. In the end, the withdrawal of the OST from anchor created a vicious circle that led to a massive withdrawal of funds, which led to the fall of the Luna price along with the OST.
Fernando shared his thoughts, noting that it is important to note that although the US dollar acts as a currency, it was only partially backed by real reserves, similar to how gold is used to support the US dollar.
"This lack of redemption means that it has no intrinsic value, which led to a 'flight from the bank,'" he said.
When will the "Crypto" end in winter?
According to Fernando, the so-called crypto winter will last as long as consumers are afraid of the economy.
"Cryptography would be a lagging indicator of an economic downturn, not a leading indicator, because it was approaching an economic downturn. Investors quickly exit "riskier" assets and slowly re-enter when concerns are high. When dollars return strongly to stocks, it will be a signal for buyers of cryptocurrencies to return with a vengeance.
"At a minimum, the crypto winter will last until October 2022, with a moderate rebound at the same time due to oversold crypto markets. It is reasonable to think that the crypto-winter will last until July 2023. The cryptocurrency follows a recurring cycle of booms and busts, usually every 2-4 years, so a recession was inevitable," Fernando said.
The recession may encourage people to focus more on the technological side of the digital currency spectrum, not just reckless trading. Sharing his thoughts on this, Fernando said it would lead to more due diligence, albeit temporarily. This recession and the collapse of Luna will be on everyone's mind for a while, especially when they choose their next Bitcoin investment.
"This time they will focus on understanding the underlying mechanisms of their currencies and will invest in more disciplined things. Then the bull market returns, and assuming that regulation has not taken effect, projects that do not deserve attention will rise in price, as in the past," he said.
On the other hand, Fernando noted, people will gradually forget about their newfound practice of due diligence when they see the return on small projects.
"I'll dip my toe in them, and then they'll catch on. Before they realize it, due diligence is gone and they are making unsustainable profits (on paper) until the next crash puts them in a net negative position again. Then the cycle continues," he explained.
Fernando believes that bitcoin, in particular, will survive this recession and thrive more than before because it is "very inherent in all Divi", followed by Solana Ethereum because it has a lot of real benefits and potential.
"Solana has many natural advantages (speed, cost, etc.). But the adoption rate remains relatively low. Perhaps the crypto winter will allow you to reflect on yourself a little and go to the basics. If that's the case, then Solana would be the winner."
Fernando told Kenjic that it will take some time, but the digital currency industry will bounce back if excessive regulations don't come into force. He mentioned tulip mania and similar historical cases, noting that "we" are still playing with the theory of the biggest fool in full view of the NFT (not all of them, but many).
What do you think about stable coins?
"Stable coins serve an important purpose in the cryptocurrency ecosystem, but are currently poorly implemented. For secured stable coins (crypto or fiat), the fundamental issue remains the right of redemption," Fernando replied.
"A clear example of this is how billions of Tera/UST in bitcoin reserves could not serve as a bulwark against the sale. While Tera/OST was primarily an algorithmic stable coin, it proved the futility of reserves in concept. Ultimately, stable coins are at the mercy of network trust," he said.
How can we guarantee that this won't happen again? Fernando believed that regulation should be introduced to avoid such situations. These things will still happen periodically according to strict rules. However, he said, "They won't go to that extreme.”
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