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What Cryptos Are Poised to Increase in Value After LUNA Collapse?
The cryptocurrency market is known for its volatility, and early May gave both new and old investors a taste of what that volatility really feels like. Between May 1st and 11th, the global cryptocurrency market cap fell by $500 billion. Included in this market dip was the collapse of the Terra ecosystem, but not even bitcoin was spared and it is still recovering losses.
It turned out that was only the start of a massive market correction that has seen industry heavyweights like Celsius Network and Three Arrows Capital potentially become insolvent.
Now that TerraUSD (UST) and LUNA have collapsed, many investors are wondering what’s next and maybe reconsidering their exposure to the crypto market. But don’t fear, the volatility is part of what makes the market so exciting and there will continue to be opportunities to make profits in the medium and especially long term. While it’s never fun to see your portfolio in the red or close to zero, remember that prices can go up just as easily as they go down. The key is to zoom out and prioritize long term gains over short term ones.
What Happened?
Terra’s LUNA cryptocurrency and UST stablecoin both crashed in dramatic fashion in early May, with UST losing its dollar peg on May 9th. The result was billions of dollars in lost value for investors of both LUNA and UST, as well as a hard fork on Terra’s blockchain. Effects were felt across the crypto market, as other coins also suffered losses while investor confidence was shaken.
The hard fork in Terra’s blockchain created LUNA v2 (LUNA), while the original blockchain has been renamed Terra Classic (LUNC). At the time of writing, LUNA v2 is trading at around $2.30 while LUNC is trading at $0.00005884, with little hope of ever recovering. The stablecoin is not much of a stablecoin anymore, has been rebranded as TerraClassicUSD (USTC), and is trading at $0.0076. The LUNA v2 project doesn’t have a new stablecoin.
Knowing that cryptos are volatile, many investors will gravitate towards stablecoins, and especially ones that offer high yields like UST did at 20% APY. But now it’s clear that even stablecoins aren’t inherently safe. So investors are certainly looking for new places to put their money to avoid experiencing another LUNA-like event. The crypto market is still young, and the projects on the market are even younger with new ones starting up every day. This makes it hard for investors, particularly newer ones, to sort through all the noise and hype and figure out where the real value lies.
The big question is whether there are coins ready to fill the gap left by the absence of Luna.
Macroeconomic Environment
In North America, inflation is rising at decades-high levels while central banks are finally starting to raise interest rates and remove liquidity to fight it. As a result, cheap money is being phased out of the market. Overvalued stocks and cryptos alike are probably going to see further corrections going forward as the pandemic-era spending comes to an end and the reality that inflation is not transitory sets in.
Regulators are also studying the markets and taking a look at what they can do to help investors minimize risk. While risk mitigation is helpful and the market could arguably be better off without so many meme coins and pump and dump schemes, intervention often also comes with restrictions that might limit an investor’s ability to take advantage of market conditions and speculate. These restrictions can also stifle innovation and result in less projects entering the market. If you’re a bitcoin maxi, you might see this as beneficial. But regulation is only fun when it isn’t happening to you, and I’m sure maxis wouldn’t want to see bitcoin slapped with tighter rules impacting buying, selling, or mining.
So What’s Going to the Moon?
The cryptos that bounce back from broader market sell offs or sustained bear markets are usually the ones that have fixed supplies or whose blockchains offer ecosystems upon which to build apps. This is because there is either scarcity included in the supply which can act as a magnet to pull prices up over time, or there’s additional value beyond the coin itself.
To figure out what has the potential to reclaim all time highs, it’s often a good idea to look long term and see how the price has acted over a period of a few years. If there isn’t sufficient data because the coin is too new, you might get lucky and find yourself a quick pump. But it’s also highly likely that the coin will experience a significant dump afterwards, which may leave you as early investors’ exit liquidity. Ultimately, long term value is key in any investment.
Assets like Bitcoin (BTC), Binance Coin (BNB), Solana (SOL), and Ether (ETH) all fit this profile in one way or another. There’s a good possibility that each of them will recover from this crash in the medium term.
All that said, bitcoin is likely the one that stands the best chance of surviving continued market corrections, since there’s a fixed supply and it’s truly decentralized.
What about stablecoins? It seems likely that fully-collateralized USDC is set to eat a large share of the market. Tether (USDT) remains the biggest game in town but there are some crypto investors who still doubt its backed 100%. Decentralized DAI has also proven to be resilient during the recent market volatility.
Final Thoughts
Will we finally see a decoupling of the crypto markets, and particularly bitcoin, from traditional stocks soon? Time will tell, but for now most people’s best bet if they aren’t a day trader is to take advantage of the bear market and “discounted” prices to stack sats.
Speculation might be slowing down, but real value doesn’t evaporate overnight. Bitcoin has stood the test of time, and continues to gain value over the long term. It’s pretty much always up in price if you zoom out far enough. Investors and traders alike should look for underlying value and stay away from all the hype.
Written by: Kate Parkman
