The failure of Terra Luna has led to fears that another failure could trigger a “Lehman moment” for the market. Founder Do Kwon’s wife is now receiving police protection in Seoul because of threats received from investors.
In a stunning turn of events, the cryptocurrency Terra Luna has crashed 99.9% in value after being above $119 only a month ago. What caused this massive decline, and what does it mean for the future of Terra Luna and other cryptocurrencies? In this article, we will explore what happened to Terra Luna and try to answer these questions.
What is (or was) Terra Luna?
Terra Luna is a cryptocurrency that was created in 2017. It is based on the Ethereum blockchain and uses the ERC20 token standard. Terra Luna has a maximum supply of 100 million tokens and was designed to be used as a currency for everyday transactions. The Terra Luna team held an Initial Coin Offering (ICO) in August of 2017, raising over $12 million.
An all time high to zero
Fast forward to April 2022-not even a month ago, and Terra Luna was trading at around $120 per token. However, by May 12th the price had crashed to less than $0.01 per token. That means that Terra Luna has lost 99.99% of its value in just one month! So, what caused this massive decline?
Why did the crash happen?
There are a few theories. First, Terra Luna may have been overvalued at $120 per token. When the price of an asset is much higher than its intrinsic value, it is said to be “overvalued.”
This can happen when there is a lot of hype around an asset- investors may buy it without really understanding what it is or how it works, driving the price up. Eventually, the bubble will burst and the price will come crashing down. This theory could explain Terra Luna’s sudden decline.
The wrong side of the law
Another possibility is that Terra Luna was being used for illegal activities and was recently caught by law enforcement. Cryptocurrencies are sometimes used for illegal activities because they can be anonymous and transactions can’t be traced. If Terra Luna was being used for illegal activities and authorities caught on, this could explain the sudden decline in price.
Pump and dump
Finally, it’s also possible that Terra Luna was simply a “pump and dump” scheme. In a pump and dump scheme, someone buys a large amount of an asset (in this case Terra Luna tokens) and then artificially inflates the price by spreading false information about it. Once the price is artificially inflated, the person selling the asset dumps their tokens on the market, causing the price to crash. This theory could also explain Terra Luna’s recent decline.
The future of crypto
Terra Luna may have been overvalued, it may have been caught being used for illegal activities, or it may have been part of a pump and dump scheme. But is the collapse of Terra Luna a bellwether of things to come for the larger crypto market?
Final thoughts
Regardless of the reason, Terra Luna’s decline is a cautionary tale for investors in the cryptocurrency market. Cryptocurrencies are still a new and emerging asset class, and as such they come with a high degree of risk. Before investing in any cryptocurrency, be sure to do your research and understand the risks involved.
Cryptocurrencies are still a new and emerging asset class and we’ve seen bitcoin rebound in the past as well as Ethereum and others. Still, it’s hard to escape the feeling that this time seems different.
What do you think caused Terra Luna’s decline? Let us know in the comments!
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Jay Speakman is a technology writer based in San Francisco, California. He writes on the topics of blockchain, cryptocurrency, DeFi and other disruptive technologies. Clients include Avalanche, Be[in]Crypto, Trust Machines and several blogs devoted to blockchain gaming. He will not rest until fiat currency is defeated.
