Terra (UST), a stablecoin designed to lock in the value of the US dollar, and its sister coin, Luna, crashed. Luna, a not-so-stable stablecoin, was selling for around $118 just a month ago, but is now virtually worthless. The crypto currency managed to erode the wealth of millions of investors, many of whom were from India.
The stock market and the world of cryptocurrencies have attracted a large number of new investors in the last two years, due to a liquidity-driven bull market in a low interest rate environment. More than 20 million Indians invested in cryptocurrencies in 2021 alone. However, recent declines in both markets have affected how investors view them. The recent market crisis has debunked several market fallacies, particularly in the lesser-known area of cryptocurrency and blockchain technologies.
While most investors start with Bitcoin and Etherium, which are more popular, they quickly move to altcoins in search of bigger gains. The entire ecosystem was affected by the collapse of Bitcoin. In November 2021, Bitcoin reached a peak of nearly $69,000. It crashed to $33,000 in just over two months, and is currently trading at roughly $30,000.
A drop like this has investors about to jump out of their skin. Many insightful opinions were expressed by a generation raised in the Internet age. Some of the discussions we’ve heard on Pushstart around cryptocurrency and blockchain include:
- Budget 2022: India’s budget for 2022 does not inspire confidence in cryptocurrencies. While the government recognized cryptocurrency for the first time in the budget, it imposed a 30% income tax on all Virtual Digital Assets (VDAs) and a 1% TDS on every transaction, and losses were not passed through or offset . This has led to an increase in the cost of cryptocurrency trading in the country.
- Regulation – Due to the significant volatility of the asset class, crypto communities around the world have called for a global regulatory framework to prevent incidents like the Luna crash. Because many investors feel that a decentralized technology like blockchain should not have a regulatory authority, a self-regulatory movement has become necessary.
- Buy on the Dip – Although cryptocurrencies have had a bull market for the past two years, cryptocurrency groups appear to be moving away from the “buy at any price” and “buy on the dip” trading mentality. The markets have shown their supremacy by reflecting the fact that prices do not rise constantly. Veterans say many new investors are learning old lessons.
- Intrinsic value: Communities have been debating the usability of certain cryptocurrencies, as well as the underlying fundamental value of the asset class. Terra has been called a pyramid scheme by hedge fund billionaire Bill Ackman, who has advocated for self-regulation in the sector. He claims that the failure of coins like Terra has reduced investor confidence in blockchain technology, which he considers excellent.
- Advertising: Blockchain-connected companies have aggressively marketed and advertised in the last couple of years. These commercials were often misleading and claimed that investing in cryptocurrencies was a simple method for people to earn money. This crypto crash has shown the world that this is not the case.
- Bubble: Every market goes through a cycle of fear and greed. Smart money comes in when fear is high, while greed is frequently seen as the top of the market, followed by a bubble and finally a major crash. Historically, stock markets have seen bubbles deflate, but many people wonder if this is the end of cryptocurrencies.
- Technical Analysis: Technical analysis, the study of charts, price movements and patterns, I think, is necessary to make money in cryptocurrencies. While many investors have burned their hands on cryptocurrencies, they try to adapt by learning about technical analysis and looking for future possibilities.
- SHOP!: “The time to buy is when there is blood in the streets,” as Nathan Rothschild said, is what many merchants suggest doing. As cryptocurrencies have plummeted to new lows, many people are considering making staggered investments in them.
Blockchain, the technology that underpins cryptocurrencies, is something I believe in. Whether or not there is a pause in the price of cryptocurrencies, the fundamental technology is incredible and will undoubtedly be the technology of the future. Whether or not this is a temporary suspension of “going to the moon” coins, only time will tell.
(The author is the founder of Pushstart. Opinions are his own.)