The LUNA and UST crash — WTF happened? Will they recover? | The Market Report

Sa. Sam.

Hello folks and welcome to this special edition of the Market Report. Today we are in turmoil, folks, in the crypto markets. What is happening with Luna? Ust we are here to break it down for you. I am joined by our resident experts, Marcel Peckman, Sam Borgi and Jordan Finiseth. Fellas, what is going on? We have a lot to talk about today. Give me your gut check. Gut check right now. How are we feeling right now? What the heck is going on? Marcel, we'll start off with you, man.

We were discussing this week. Everything that is crazy and unexpected is something regular for our crypto users and traders. We've been, we've seen something similar in 2017, 2018, even some stablecoins that went bankruptcy by then, shocked all of the traders. But over the past, I don't know, 18 months, we had a relatively quiet period. Yes, a couple of rug pulls, the wormhole, $900 million missing, but other than that it was pretty standard. We didn't see a coin going down 80% in one day as we saw today with Luna. So yes, everybody who has been here for less than 18 months is probably shocked. But for us who have been here since 2016, 2017, it's part of the game. Bitcoin is not going away. Ethereum is not going away because of Luna or because of ust. Everything is business as usual.

Yeah, it seems like that maybe we can return to the whole four year cycle talk. It's not extending into a bull market into this year. So like, like it's always something that causes the cycle to play out. It's never really that predictable. Back in 2017 it might have been the release of a Bitcoin ETF and they just dumping it on the market, whatever. But something usually comes along to cause this to happen. And here we go. This is just. But like Marcel was saying, if you've been around for at least one cycle, you're like, oh, this is crypto. Yeah. So yeah, kind of stick with it. We're not going to go away, but might be some pain for a while.

Yeah. And obviously the pain is magnified because the market is so much bigger now than it was, you know, three or four years ago. Also, with respect to something like Luna, you have, you know, the C word, which is contagion risk. How many organizations, how many investors, how many users have exposure to Luna as well as to the stablecoin ust I think that's where a lot of the issues stem from, is the contagion risk, the downstream effect of what's happening, But I was. You know, it is still shocking. I mean, we've all been around the market for a long time. It's still shocking to see the third largest stablecoin and a top 10 project by market Cap bleed this heavily. But as, as you know, no shitcoin said, you know, the market isn't going away anytime soon. Bitcoin is here to stay. You know, we want to just kind of reiterate that it's not the first rodeo that we've all had. We've seen a lot of really tumultuous events in crypto, but overall, the builders are building. They have over $30 billion in VC funding just last year alone. So these projects are going to get built out and the next cycle will probably reveal new leaders in the space.

We have a lot to. To actually dive into. I'm going to kick it over to Marcel. We're going to show charts, we're going to break down what's actually some of the theories that you see people talking about on Twitter. But Marcel, go ahead. You're muted.

I want to remind everyone that even if you got here like six months ago, you probably remember the Axie Infinity, the running bridge hack, which they lost over $600 million on that day. The game is still there, the platform is still working. Yes, there was a bug, it was a hack, they lost a ton of money, but the system still works. The users still see some value on that, and it's still working. Crypto is under development, especially defi applications. They're being built as we use them. So yes, there will be some mistakes, there will be some errors, but the system continues. The token does not disappear from one day to another. Even Tether, the biggest stablecoin by Market cap, back in 2017, 2018, there was a day it dropped to 75 cents and it's now back to a dollar and working as usual. So it's a learning process, it's evolving. So it's natural to have some mistakes.

But I also feel like there is a clear delineation between algorithmic stablecoins, stablecoins backed, multicolateral stableco coins. Then you have, you know, the bonds that are backing, you know, tether. So, like, each stable coin is kind of different in its own realm. I have some conspiracies about that I want to dive into based on some of these Twitter threads. But first, if you're tuning in, fire away your questions. You want to know what's going on. We're here to answer all the questions you got today. I See a lot of people saying, hey, D. Gen play. Am I going to YOLO in, you know, Tara, two bucks or 95 cents or whatever. We're going to talk about some of that. Maybe, maybe this could be a good buying opportunity. But first things first. I want to show this chart because this thing is just an absolute horrific blood scene. So, Danila, if you wouldn't mind just pulling up my screen real quick, we'll get into the lunar chart and then we're going to get into like, what actually happened behind the scenes. So, Danila, whenever you are ready, we'll get that chart up. In the meantime though, I, I do want to kind of like talk about where we were like a couple weeks ago. Terra Luna. We were in kind of this consolidation phase. It was up at 120, then it kind of went down to 90. Guys. Sam, why don't you do this? Can you break it down like, what actually happened when it came to like, the Terra Luna UST stuff? Can you kind of give us a skinny?

Sure. I. So I think what most people have woken up to the past few days was the fact that Terra stablecoin UST lost its dollar peg. Right? So theoretically, UST as a, as a algorithmic stablecoin is supposed to maintain its peg with the dollar algorithmically in a way that encourages, through a system that encourages investors to take advantage of price changes in ust. Right. So there's a burn mechanism involved. Essentially every time UST is minted, an equivalent $1 of Luna is burned and vice versa. And when the UST falls below a dollar, investors are incentivized to burn UST to, or remove it from circulation and receive Luna at a discount rate. So this is really the system that was in place with the algorithmic stablecoin process. It's not like, for example, tether, which is supposed to have an equivalent backing of US dollars or equivalents in its reserves to issue a, a tether token. So that's really the difference between, you know, stable coins like, like tether and the algorithmic stable coins which rely on a sister token, the case of Luna, Terra Luna, which is, which is the, the Luna token. So what seemed to have happened is that UST deposits on anchor fell over the weekend. They fell, I think, by over around $3 billion. And of course, as we all know, UST is overly relying on anchor for demand. We've all been attracted to those 20 APYs. And I remember I almost took the plunge on that a few months ago. And then all this stuff about bitcoin Reserves started to come into play. And talking about bitcoin, we're going to back it with bitcoin. And that's when the alarm bells went off, you know, because these two assets have a very different risk profile. Initially, I was concerned about the value of the bitcoin that's going to be backing this protocol, but it turns out it was the pegging mechanism that was the huge issue. So UST was then withdrawn from various defi platforms, most notably from the Liquidity Pool Curve and then Terra, or, sorry, Luna Foundation Guard. Right. You know, the nonprofit that does the bidding, basically use its bitcoin reserves to prop up its USD peg. That didn't work. We wrote about this earlier in the week. About 42,500 BTC removed from the L LFG wallet as the peg crumbled. At that time, I didn't want to be too sensationalist and say that they were just going to offload that btc, but it seems like that's what was. That's what happened. So now UST's in freefall, and also it's affecting Luna, of course, you know, the. The sister token. So Luna was what, for 120 over 100 bucks, as Benton said, now it fell below a dollar today. Absolutely wild.

And you kind of saw that screen share. We have a lot of people online chirping about what actually happened. Marcel?

Yeah, I just want to translate what Sam perfectly described. But for the audience that isn't aware of how cryptos work, when we say something is decentralized, we imagine that there's only algorithms, there's a code written that handles the stablecoin. So that's what people expect. But in true, what happens is there's a team of engineers, of software coders, of developers, in this case, DO Kwon's team that was handling how the money that was backing the stablecoin was used. And he one day decided, well, let's buy a bunch of bitcoin, let's buy a bunch of Avalanche to use at backing. So it was not really a decentralized project. So saying that an algorithm's decentralized project failed in this case is incorrect because it was 100% centralized. There was a small group of people making the decisions by themselves. And when they decided to buy bitcoin to support the stablecoin and bitcoin price dropped, it was their mistake. So it was not really a decentralized project. Just. Just a point that I want to highlight for our viewers that are not so much inside the crypto industry.

Yeah, I'm going to go ahead and pull up this interesting. I want to show this Charles Hoskinson post because what he does is he kind of outlines it. Now, I have a little bit of a conspiracy theory of if you're looking back at previous narratives, what's been happening. I mean, we can go through and read this. Blackrock Citadel borrowed 100k BTC from Gemini. They swapped 25k of it, that BTC into UST. This was all done quietly in anticipation of the attack. So this was planned. It was premeditated. When the time was right, they called up Do Kwon at Terra Foundation. So they wanted to sell a lot of BTC for UST as a large trade. They didn't want to move the market. So, etc. You can kind of like read through this. But what I'm gathering from this all is a couple things. Doan got subpoenaed by the SEC back in November at mainnet. We all know that Janet Yellen came out on the spot the second the peg was lost from UST yesterday and started clamoring about this narrative of. Of stablecoin regulation. We know they've been talking about stablecoin regulation. So I am in the. The camp that the SEC knew and allowed this was going to happen. Blackrock and Citadel came in, did their thing. This makes the case for the SEC to come in immediately to do some sort of stablecoin regulation to allow this particular project to fail. That's what my expressed opinion is. This is all speculation. This is not, you know, this is not facts. This is me speculating on what potentially could have happened. But it's curious to see what folks in the industry are saying, like Charles Hoskinson and other leaders. But I'm curious to hear what your thoughts may be because there's a bunch of stuff just happening on Twitter that we can run through as well. Again, somebody else, the biggest, the biggest.

Issue here that we really gotta like talk about or discuss is like the idea that crypto messiahs are needed and that we just fl. People just seem to flock to them. Like they're like they're. They're infallible and they're not going to make any mistakes. Like. Right. Even that what you just showed Do Kwon, they went to Doan and got 25,000 Bitcoin worth of us on like on the low down because they wanted to kind of orchestrate this thing. And he let it happen because he thought that that would help his overall position like this. If you watch him on Twitter and What he's been saying, he's been all over the. A lot of the crypto community acting like nothing could ever cause this to happen. And it seems like even like regular crypto folk are like, you know, let's take this dude down a peg. It doesn't even have to be a government conspiracy. A lot of other crypto products out there are just probably like, this dude ain't living up to what we all expect. So let's. Let's take him down a peg. And like, that chart looks like bitconnect 2.0. The difference is that you had big money funds invested in this BitConnect, whether it's Delphi Digital or Raoul Paul, like, there's a contagion spreading across the market. And it all goes back to that Doe Kwan and the idea that we need a crypto messiah.

Crypto messiahs are dangerous, as we've all seen. Yeah, Marcel, go ahead.

If we're talking about if it was blackrock Citadel, if it was a government asking the funds to intervene, the reason or the actor that did it, if somebody didn't do it yesterday, somebody else would have tried in the next month because they would make the assumption, well, if bitcoin drops to $30,000, then Luna's reserves for the stablecoin would drop by 20%. So Luna, it's something that somebody with money and intelligence will eventually get away with that because he'll find a mistake. And the mistake was that a centralized solution, a centralized person or group decided that putting bitcoins and Ethereums and Luna as a collateral as margin for a stablecoin would work. And in fact, we just seen that in practice that it simply does not work, or at least it requires much more margin. So even if bitcoin drops to $5,000, the stablecoin still survives. So it was a basic mistake, and somebody found it and exploited it. So it could take a month, it could take another six months, but eventually somebody would have found out and exploited it themselves.

That's a great point, Sam. I was wondering if you could break down, like, what is an algorithmic stablecoin? Because I want to kind of like, for folks that are watching who don't know what that is, can you kind of break down what is an algorithmic stablecoin and what's. What's maybe the difference between others that are out there.

Sure. So usually when we talk about stable coins, when you think about tether, for example, or circle, what. What you think of is, you know, they mint an actual stable token and that token is supposed to be backed by an equivalent reserve, either of dollars or dollar equivalents, right? These could be various other instruments that are, you know, treasuries, etc. That's the general scope when it comes to the regular stable coins that you think about. And usually if you're new to crypto, you've never been to crypto unless you've gone down the tether rabbit hole. We've all done that. The tether rabbit hole leads to tether FUD leads to all this stuff. And then you realize that, you know what, maybe it's not as bad as, as, as you thought it was. The algorithmic stablecoins is basically these tokens don't need that one for one backing per se. Theoretically, an algorithmic stablecoin like Terra, for example, it maintains its dollar peg through an actual algorithm that encourages investors to take advantage of price changes, in this case between UST and the sister token Luna. So price changes in ust, you know, have an equivalent burn mechanism there, depending on how you know, the price fluctuates. So every time UST is minted, in this case an equivalent $1 Luna is burned and vice versa to keep that peg roughly close to a dollar as possible. And when UST falls below $1, you know, the algorithm incentivizes users, traders, investors, etc, to burn UST or remove it from circulation and receive Luna at a discount rate. So really this, this system relies heavily on the sister token, which is, you know, Luna. And that's where a lot of perhaps the regulatory issues might come into play. I know we've talked about regulations with respect to stable coins. Honestly, I think stable coins have done a lot of good. If you go to emerging markets, for example, places where they might not have ready access to dollars, maybe through sanctions or whatever it is, and they have a crumbling local currency, they're using tokens, stablecoins issued by Tether, for example, in order to transact, to get that stability. Because when you talk about spending money, you, you tend to want to have some stability on a day to day, week to week basis. So the algorithmic stablecoin as, as you know, Marcel rightly mentioned, you know, we think of it as, as there being, well, there's a, there's a, there's an algorithm there that's maintaining this whole system. But no, there's people behind that, there's decisions made behind that. And the issue that we saw I think reflects that. But there's also manipulation as you talk about, you know, the whole mechanics of the thing, the fact that the attackers seem to have accumulated, you know, over a billion dollars in UST and over the counter markets and then borrowing billions more in btc, then dumping the btc, triggering the fud, triggering the sell off. All of that seemed to be connected. But that's the general difference between the algorithmic StableCoin and the dollar backed Reserve StableCoin that the two biggest stablecoin issuers, you know, being circle and being tether, operate.

So I want to let those folks that are just tuning in now, here's what's happening. We were breaking down USD Terra, what's going on? What does this mean for the overall markets? We're crawling through the Twitter sphere right now seeing what people are talking about. I do want to touch on DO Kwon's strategy for recovery and I also want to point out that I think it's pretty. No really bailout. We've talked a couple times on pre show now like hey, this could potentially be the 2008 crypto financial crisis, yet there's no bailout. So we want to talk about DO recovery. Do we think it's feasible? And then I want to shift over to what is happening. What does this mean for the overall markets right now? Does this mean that we're going to see more consolidation for the days and weeks ahead? What? We'll start with that one first. Jordan, what is your take on what does this mean for the overall markets? And then we'll shift over into Quan strategy.

Well, just looking at the markets right now, I think it means that we're in for some more pain because everything's taking another leg down. It's like, oh yeah, this is, this is bad. This is like the more I look at it, I'm like, maybe this is the crypto Lehman moment for this cycle. I don't know, like you're getting people just kind of in fear mode selling off. They don't really see what's going to stop this. And the whole fact that Luna and UST are still imploding and it got down below a dollar, like, yeah, Luna got to a dollar before UST did that. That shows you how bad that situation got. Yeah, this isn't going to be anytime any kind of good for a while. Just kind of buckle up folks and prepare for pain. If you have any free money on the side, I'm not saying jump in now because we might have more downside, but like start preparing the dollar cost average. Right, that's positive dollar cost average. This is a great opportunity for dollar cost averaging. They're really Good projects because we're back in 2020 prices. Yo.

So I see Mata has a question. Why do you think this affects the whole market in general? Is it just FUD or do you think there are more factors? Sam or Marcel, what are your takes on why do you think this is affecting the whole market?

Well, we saw.

No, no, go ahead.

We saw a huge dump on btc which of course that's going to affect everything because bitcoin still exerts a gravitational pull on the broader market. You know, regardless of, of, you know, bitcoin dominance, there's always that gravitational pull. Also there's the, you know, the C word I talked about earlier, the contagion risk. How many people have exposure to Luna? How many people have exposure to, to the ust? And it also has a huge hit on confidence too. So these confluence of factors are leading to, you know, the, the, the, the downstream effect. Contagion risk is usually huge in markets because it's rarely an isolated event like we saw back in 2008. Just because, you know, one bank fails, you can't just say, well, that, you know, the losses are just simply concentrated in that bank. No, no, there's a contagion risks beyond that. I think we're seeing that right now. Anytime bitcoin dumps in a coordinated fashion like this, whether they were trying to burn Doe Quan or otherwise, it's going to have a significant impact. And of course, all the on chain metrics guys, you know, they couldn't predict any of this. You know those guys talking about how exchanges, bitcoin exchange rates are at the lowest, are at the lowest level in multiple years. So what we saw 85,000 entertainment literally a couple days ago. That can change just like that. So on chain data, as far as I can tell, has no predictive value from the market perspective. So if you want to do on chain data, do it. You want to look at it, look at it. But don't look at it as a predictor of where price could go because it's more noise than it is signal.

Marcel, what is your take?

Yeah, Benson. So I just want to highlight that in this specific case, the Luna Foundation Guard, the company, the decentralized company that was backing the stablecoin UST, decided to buy over 40,000 bitcoins to back it. And once the Stablecoin de back it, they were forced first to borrow those bitcoins for the market maker and then they were eventually forced to sell them, so causing a market pressure. If that hadn't been the case, maybe bitcoin would have suffered less. But considering that we had already been on a bear market for the past, I don't know, six months, seven months, the investors mood was already affected. So you can check by the futures market premium. So how much those traders trading at CME are paying for contracts expiring in June or September. So the higher the price they are paying for those future contracts means the more bullish they are. And over the past couple of weeks the premium was really small, like 2% per year, which is nothing. They're still not bearish, they're still not betting on further downside. But the move, the sentiment was not great. So when a news such as the Luna breaking the peg and eventually going down 80% and it was a top 20 coin and as we already explained it's part of a bigger defi ecosystem. Most of those balancer compounds are integrated, those pools, liquidity pools. So when one of them goes down in value, it drags down the others. So there's a cascading effect. But the system is still working. Bitcoin is trading at $30.8K. Nothing really changed on the fundamentals. The blocks are still getting produced every 10 months with transactions, every 10 minutes with transactions. The same for Ethereum. So it's more about a momentary panic that will eventually vanish and the money will shift to better stable coins. Maybe Dai Maker dai, maybe USD Coin, usdc. But the system continues, it's still working as designed.

We have a, a question from the audience and I'll, I'll actually kick this over to, to Jordan first. When do you think recovery would start? Is it going to happen in 2022? Are we just in it for the long haul for the next bitcoin having? What is your thoughts on that, Jordan?

I remember actually looking at like a couple weeks ago because I'm like oh crap. The next bitcoin having isn't until 2024 and if we're going by this four year cycle that means we're gonna have some serious pain. And this is just like here we go. Do I think we, I think we'll probably hit a bottom this year when I don't know. Again, that's like dollar cost averaging or trying to just average yourself into a market is kind of my approach because I'm not in the business of trying to pick talks or tops or bottom. It's, it's a really difficult thing. So yeah, I think that we'll hit the bottom but I just wanted to like touch back on even the FUD around USDT kind of helped facilitate this because even for years everybody's been expecting USDT to be the thing that blew up the market. So it kind of encouraged new decentralized, stable coins to rise up. People kind of got behind Luna because like, oh, this might actually be something that can replace usdt. And here we go blowing up the market because this untested system just came out of nowhere as compared to the USDT threat that's been around since 2017. So like, don't. We can't ever expect what's going to happen in this crypto market. It's never what we all expect to happen and it's just kind of rolling with the punches and not being overexposed too much. But yeah, we're, we could, we should hit a bottom. I, I think we'll hit a bottom this year, but it's going to be a long road back up after this sim.

Marcel, what do you guys think? Are we on a recovery after this or are we in this for the long haul? Sam, what are your thoughts?

As I mentioned before, I see this was before the whole Terra blow up. I really don't see any pathways for market recovery in the next three to six months given the fact that the Fed removed liquidity, given the geopolitical factors, the macro factors. Unfortunately, crypto isn't immune from, from macro sentiment, especially when we have legacy finance participating in the market and they treat crypto as a risk on asset. So if we take a look at cycle theory, I mean I know that, you know, the lead proponent of the lengthening cycle, I think Ben Cowan, he tweeted, I think last week that four year cycle is, the extended cycle is dead. Lengthening cycle theory is dead, he said. So it actually, if you take a look at it, it was more or less a perfect four year cycle in the sense that we had a peak in year three, almost exactly year three being last November. So what was lacking in this four year cycle was the blow off top, you know, because what we saw back last May and what we saw in November, there was no signal for the top per se. Like there's, there was no, there was no, you know, price momentum that would signal that, you know, where we've reached the top based on previous cycles. So no one says we have to have a blow off top and we didn't really have one this year per se or last year. So I think that we haven't bottomed yet. We'll probably be in the process of bottoming the next three months or so and the recovery will, will take shape after that. Whether it's consolidation, I do suspect that in the second half of the year the narrative is going to shift from inflation to growth. Because the Fed is hiking rates into a declining economy that's not going to be good for growth. Eventually they're going to be forced, in my opinion, to cut interest rates again. And that might actually be a boon for risk on assets. So take a look at the Fed, take a look at the dollar index and then of course monitor what's happening in the market today to kind of get a sense of where we're going to go. But we're probably not going to bottom. And in the near term I see it probably the next three months before we reach the definitive bottom for the cycle.

Marcel, what are your thoughts here as regards to recovery or what are we looking at here for the rest of 2022?

Okay, Ben, so what you are asking me is a bigger question that lies outside of cryptocurrency. For instance, if you think that a larger crisis is going to take place in developed markets like US GDP is going down 3 or 4% or Europe is entering a grind out because of the lack of Ukrainian gas and etc. If you think that a larger crisis is coming our way, it's not about bitcoin or cryptocurrencies going down. It's about what can I do with my money so I don't get liquidated or I don't get my assets go down 50%. There's no safe asset because even if you get cash at home, if the government sprints more money, there's more inflation and your purchasing power goes down so there's no safe assets. If you think that a global crisis is about to take place, but once you understand the value of the digital scarcity of bitcoin and cryptocurrencies, you're going to see that eventually it can go down from $50,000 to $20,000 in a crisis. But eventually more people will start using it and more people will value scarcity and the price will go up to $100,000, $200,000 if the same thing. Let's assume I'm very conservative, so I'm going to buy gold. So I'm paying $1.9K for the Troy owns right now and the price eventually goes up. Yes, Michael was right. Gold is now trading at $4,000. So what's going to happen? Every producer in the world, every mining company is going to focus on gold and more gold will be extracted from Earth. So the gold price will eventually go down back to the 2000, if not 2000, $3000. That cannot happen to bitcoin and cryptocurrencies. If there are more miners trying to produce more bitcoin, the network difficulty goes up. So the number of bitcoins produced per day, which is 900 bitcoins, remains the same and it goes down every four years. So even if a crisis goal eventually happens and bitcoin goes down to $20,000, which I think it's really possible, the best asset in the world that you can hold is cryptocurrencies because they're scarce.

Yeah. And something I want to kind of like emphasize too, from like a macro level, you have a lot of stuff going on right now, from the war in Ukraine to China lockdown, supply chain issues, rising energy prices. And something Chamath said the other day was like, anytime you see energy prices rise 50%, typically a recession follows thereafter. So we're kind of seeing this play out from the macro level. But this could be kind of like the domino that cascades into like a lot of other areas inside of crypto, which I find it really fascinating. But the one thing I do want to talk about right now is Doe Kwan's strategy or plan. Like, is Luna dead? Is it, Is it, Is there a chance for recovery? So, Danil, if you wouldn't mind pulling on my screen, I want to run through this, this quick Twitter thread. And for those of you that are just joining us, we're running through Terra Luna. What the hell happened? And this is kind of Do Kwan's Twitter thread that he put out yesterday, I believe. So the price stabilization Mechanism is absorbing USD supply, over 10% of the total supply. But the cost of absorbing so much stablecoins at the time has stretched out the on chain Swap spread to 40% and Luna Price has diminished dramatically. So he's kind of breaking things down. What he proposes is that the, the Luna, you know, community had proposed this 1164 proposal to increase the base pool from 50 million to 100 million SDR. This, in theory, he is saying should increase the minting capacity. So with all this kind of being said, is there a path to recovery for Terra Luna? What are your thoughts here? Are you even considering maybe buying this as a potential prospect to recover even the half of what it was? Jordan, we'll start this off with you first.

Oh, I think the trust that Luna did have might be destroyed. That's the biggest thing. Like rebuilding trust is, is a really difficult challenge. Even if they could get the logistics of it Worked out how many people are going to want to trust the Luna ecosystem? I'd rather go over. Maybe if I'm going to go experimental, I'd probably pick something like Frax Share, just because they're not getting too high on the horse and they're kind of keeping their own pace and developing in a. At a rate that I think is more acceptable. Yeah, I, I don't. I'm not too keen to jump into Luna if I'm. I'm not even feeling like trying to play the trade and catch it on the bottom, trade it when it goes up, any of that stuff. I don't like to really get involved with things that are collapsing like that. It's just an energy thing for me. I don't think that the trust that. I don't think crypto people are going to trust it all that much after this.

Sam, is there any hope for Luna?

I mean, stranger things have happened in the crypto market. You know, if Luna is able to recover, it's interesting that, that they're not getting a bailout, it seems, you know, because they do have a lot of heavy backers. Right. But they're not getting the bailout, which leads me to believe that there is concern about the overall trust of the actual ecosystem, as Jordan mentioned. Okay, we can maybe backstop you and, and bail you out, but if trust moving forward is lost, it's not just some hack, but when there's a case of a hack, you can patch that up, you can work through that. It might not necessarily destroy the trust of the platform, but I think what this is, what this has done, it's really shined the spotlight on the issues with algorithmic stable coins. Right. Because there's really no formula, there's no algorithmic stablecoin that can predict everything that's going to happen. So I think that's really where the issue is. I mean, can it recover? I suppose in terms of buying Luna at two bucks or whatever it is now. You got to look at it from a risk reward perspective. It might not be bad as a risk reward trade to get it in at $2 and then ride it up later on, but, you know, don't. Don't hang your whole portfolio on that, is what I would say.

And Marcel, what do you think? Any hope for Luna?

I don't first, because what Sam said, trust. When you build a system like that, you need trust on the issuer and it has been lost. The guy has been shifting what he's saying. Now there's news coming out that he was the creator of the basis Stablecoin, that failed in the past. So considering that our other options out there that seem better and more respectable, I don't think there's a chance for the Luna to rebuild itself.

Yeah, I, I'm, I'm also kind of in that same party. I. You know, when you look at Iron Finance, other hacks, Pancake Bunny, swap on bsc, these, these like kind of big name projects in those ecosystems just never came back. And I, I think you're right. I think what it does come down to is trust. Because once you have this giant ecosystem and a lot of people, you know, we'll, we'll kind of look at this and say, hey, I, you know, I got, I got earned on this once. I don't want to get burned on it twice. By the way, we have a poll live right now. Tell us what you think. You think Luna's done? You think he's got a chance to recover? If so, all those DJs out there, maybe you're getting in this thing right now hoping for a quick 3 or 4x. We'll see what is gonna happen. Do you think there will be a bailout with Luna? Like, will companies come to defend that? And if so, why would they do that? Jordan, what do you think?

Another aspect of like will it come back is Doe Kwan himself. Like, he's not making any friends in the crypto industry. Like, he's not being any kind of humble. Even now that he's been kicked off the mountaintop and like down in the valley, he's still like, I'm gonna kill die. No, like, people do not respect that. People respect people like Vitalik Buterin who are kind of like more soft spoken and can realize, oh yeah, admit to mistakes and stuff. Like, I don't think he's probably one of the biggest hindrance to the fact that it's long term success because people are really turned off by his personality.

Where's Elon Musk at? Let's get, we get an Elon Musk bailout. Say, why would, why would they not get bailed out? And you're saying Is that 100 trust?

I, I mean, look, I think that I forget which hack was it, Was it the Ronin hack that resulted in the backers coming in and stepping up and.

Yeah.

Providing backing? I think it was, don't quote me on that. But with this, I think. Yeah, yeah, that's right. So, but with this, it's like their backers, I mean, these VC funds that are backing it. I've Been writing about it for over a year. They have a lot of money, they're flush with cash. I think they could step in financially and do it. But you also want assurances. You want to be able to back a project that is going to have long term viability that can get over the hump. Can it get it over the hump? It could, I think it could. But the issue would be the trust factor. There's a significant hindrance now to allowing the Terra Luna ecosystem to rebuild to what it was. That issue could be trust. That issue could be the underlying issue with the stablecoin mechanism, with the algorithmic stablecoin mechanism. It could be an issue with Doe Kwan himself. As Jordan mentioned, he's not really winning any favors in the community right now. You know, on people still after you literally created a stable coin that has destroying the market in a sense. So that's kind of where I think the reluctance might be and the, you know, the support, you know, the recovery plan that he announced. I'm not sure if that's actually going to address any of the issues to be honest.

Yeah, it. So I see. I Mohit has a good point here. He says nobody will bail out. Most of the VCs have lost money. Common people VCS will deploy the money on new stablecoin projects. It almost makes sense that if, if you're a vc, do you want to dump, you know, potentially partnering with other VCs to back this $1 billion loss? You know, is that better? Is that capital better deployed on new projects that maybe could make you know, 2x that it's. I guess it's an interesting position from where the VCs sit. I guess we, we have this poll open right now. Go ahead Jordan.

I was going to say like we're not in like a, we're not an island to ourselves. Crypto is in the, this little player in this big world of events going on. Like you mentioned earlier, War IC and we're just in like all these cycles, like 100 year cycles are coming to a head right now and the whole world's going through this transformation. Even just the whole thing of going from web two to web three shows that we're under in the midst of this huge transformation. And I've never seen any big transformation that didn't include turmoil as we, we've as even Marcel mentioned. If somebody didn't do this yesterday, somebody would have figured out what happens with UST in a month or two. But I'm gonna go out and say there was always going to be something that tanked this whole market because the stock market's tanking. We're not completely divorced, uncorrelated with that. So all this is happening in a big stew of like cluster, and we're just trying to like stay above, keep our heads above water. But there's no simple solutions. There's war going on in the world, there's famine, there's collapsing yields, there's. We can't. People can't plant in their farms like this. There's so many things that are distracting people from crypto, that this is. There's. Yeah, this is a global contagion of so many different events that we all just need to kind of buckle down and realize that we're kind of having a Fractal of the 20s, 8, 1920s now started with a pandemic heading into economic collapse and all this stuff. So there's just a lot going on. Realize it's not all just about crypto, but like, we're in for some struggles over the next decade.

Marcel, go ahead.

Well, something that worries me is whenever I hear that somebody's depositing stable coins or whatever coins at a yield farm or defi application and said, well, it's risk free and I get more coins by the end of the day, even if it's rapid. Bitcoin, whatever, there's always a risk involved. What is the main benefit of cryptocurrencies? Self custody. I can check right now how many bitcoins are in circulation. I can check how many litecoins are in circulation, and I can check my balance instantaneously just with a simple computer. I don't need to be a miner. I don't need to need heavy equipment to do that. And once you hand out your coins to an application decentralized or centralized, you give up on that. So the benefits of self custody just. They disappear. You're not able to check if those coins are already available to you? Yes, you can check the address of Aave has 200,000 Ethereum and maybe 10,000 of that belongs to me or 10 coins belong to me. But you cannot instantly verify and check, Yes, I can withdraw those coins from this service. It's not like that. So you give up on a large benefit. So there's always a risk involved. When you get yield, there's no free lunch.

Never is. We got 41% of the people saying that Luna will recover. Coming up next, closely is 40. Actually now it's tied 40, 40 neck and neck here. A lot of people are torn over the ball we talked about and what are we doing in times like these, you know. So for those that are just tuning in, we're breaking down what's going on with Terra Luna ust. We appreciate everybody that has been tuning in today to get some of the hottest information of what's going on. We've been crawling Twitter, seeing what people are talking about. If you have questions, drop them in the chat. But what are y' all doing right now? Are you sitting and seeing, you know, if we go lower? How are you all approaching this from a potential investment slash trading opportunity? Jordan, you want to kick us off?

I'm just kind of observing. I'm waiting for the dust to settle. I'm not even. I'm not deploying any. I haven't been. I haven't deployed any capital that I've earned from working, especially all year long. And that just seems like it's going to be the case for a while because I'm going to wait for this to settle down. And I think all like hope is a big thing for people and I think that all these people that want looney to come back are hoping that it comes back because it's going to be a rough road if it doesn't. And that means that the bear market that we're going to face is going to be a little bit longer. So, yeah, I hope that it comes back quick, but I don't see either Sam mentioned.

I don't.

There's not any good factors out there that are saying, yeah, macro, return, bull market, let's go. Nope.

It'S looking pretty grim out there. Sam, what are you doing?

So never sell a capitulation event. I think, you know, if most investors realize that, they wouldn't get wiped out. I'm not in a position to sell any kind of capitulation, so I'm removing that off the table. And I'm still confident that I hold high quality assets that are going to be very beneficial to my portfolio over time. So I'm content with my positioning. As Jordan mentioned, I don't really have any pension right now to be scooping up any projects because, you know, friends don't let friends buy altcoins in a capitulation market, you know, so let's not catch falling knives, guys. Right? So I have no intent of doing any of that once I get a sense of a bottom and there's no perfect way to pick bottoms. I'm not trying to pick a perfect bottom, but when I get a sense that we're in a, we're beginning to stabilize in a lower range, I could start considering adding position sizes. With respect to Bitcoin, I have a DCA general DCA strategy that's as incrementally to my holdings, despite the fact that I'm fully allocated as a from a purely capital perspective, but so it's nice to be able to DCA on a monthly average as well. Beyond that, I'm not really doing anything fancy. I'm not trying to get cute here.

Very good insights, Marcel. What are you doing in times like these?

Well, I deployed some capital to buy some leverage position in Bitcoin, but Nothing significant below $30,000. But I still believe that we're going to see lower levels if a global crisis develops. That being said, if you have enough money, I beg you to diversify. Even if you are fully bought on Amazon, on Google stocks, diversify. Buy a little bit of bitcoin, buy a little bit of Ethereum, buy a little bit of real estate or gold or whatever. So the more diversified you are, the lesser the odds of your portfolio going down 50% in a week. Yes, it can still happen, but the odds are smaller. So diversify by buying different assets. Not only Bitcoin, Luna, Avalanche and Ethereum, not only cryptocurrencies. If you have enough money, buy some real estate, buy some stocks. So get out of the risk. Because there's lots of uncertainty going on, especially with cryptocurrencies because of regulation as well. Those professional investors will not put a lot of money until they're clear what the regulation is saying, what is approved, why is the ETF not being approved? So once they have the rules set, even if the rules are really strict, they can decide, okay, I understand the risks. I know what is a security token, what is not a utility token. I know I can buy this, this coin and this coin I should not buy Ripple because of the SAC disputes. So once the rules are clear, even if they're really strict, it's better for professional investors to get in the market. But for right now, I suggest you to diversify.

Yeah, my recommendation is McDonald's is always hiring, so you know, fill out your applications folks. I mean I consolidated my portfolio exposure to Luna. I am now a long term bag holder. So I have no other choice but to hope for the best here. So it happens, people got burned in this whole thing. It's sad to see. Hopefully there's some sort of recovery plan. We're gonna find out in the days ahead. This is one of the hottest stories that we're going to be following here. On Coin Telegraph. But any closing thoughts before we wrap things up today? And I just want to appreciate everybody that tuned in and fired away your questions to get the scoop on what's happening with Tara and Luna and ust. Let's see. So Jordan, closing thoughts for today's show.

The lesson I Learned back in 27 or 2018 is the best way to make money in crypto. I mean, the, the run ups are really fun, but the best way to make money in crypto is to work in crypto. Which is why I work in crypto now. Like that's still my play. I, I enjoy it. I would encourage people to close their block folios, go outside. Like this is, this could last a while, six months to a year. Bare markets aren't fun. Don't make it all about crypto. As Mar Marcel said, like diversify out of crypto, but diversify your, your thought, your mental space out of just focusing on cryptos. Go outside, enjoy the sun, enjoy some nature, try and find, talk to your friends, talk to your family, do something exciting away from crypto because this show ain't going to get much better anytime soon. So you might as well find something to enjoy.

Amen. Sam, cozy thoughts?

Yeah. Take solace in the fact that we're all screwed. And by all of us, that means stockholders, the bond markets, everything is screwed right now. I mean, The NASDAQ is down 25 this year. The S&P 500 is down, I think what, 15, 16%. You know, gold, which is proven to be the ultimate shit coin, is still below 1900. Imagine that. You know, if you held, if you've been holding gold for over a decade, you've made no money whatsoever. Everything is down right now. Right. The bond market is a complete, it's in complete chaos. So that's the macro factor that we're considering right now. There's really no safe place. Oh, you want to hold cash, great. Well, it's being inflated away for consumer goods at 8 and a half percent on the asset side, probably double that. So again, we're all screwed. We're all in this together. But this, this too shall pass. Hold decent assets, hold high quality assets. And the fantasies about the Lambo and stuff, put that away and actually be productive in life as, as Jordan mentioned, you know, you want to be in crypto, work in crypto, you know, be productive and you'll be fine in the long run.

All right, Marcel.

My message is, in the end, it won't matter if you paid $60,000 or $30,000. Either the bitcoin and crypto will succeed and this will be one of the scarcer assets in the world, valued at a million $2 million in 10 years or we're going to fail miserably. So don't spend so much time thinking, well, I could have paid $29,500, I'm paying $35,000. It's not going to make any difference in the end. If you can start get your money every month and DCA by a little bit every month. If you are already all in, just forget about it. Don't over trade because the prices went down. The lesser you trade, the better.

Great advice from all three experts here today on the marker for I will leave you with this. Get ready, folks. Batten down the hatches. It's gonna be okay. You're gonna be thankful that you went through this painful time because in a year from now, two years from now, adoption's gonna happen. Things are going to get to a better spot. This is just one of those events that we've seen. March 2020, Black Swan event. Everyone thought the sky was falling. Now you'll remember May 11th as the day of infamy for crypto for 2022. We will be fine. There is light at the end of the tunnel. We will continue to forge ahead as an industry and I'm super excited. But there's going to take some patience. Like Jordan said, like Sam said, there's going to be some pain to endure. Marcel even said as well. Again, thank you all for tuning in today for this special edition of the Market Report. We're bringing you the fast and we're bringing you some of the news you can't find anywhere else. We appreciate everyone that tuned in today. Loved having everyone chime in on chat. Make sure you're here on Tuesdays, 12pm Eastern. We're here like and subscribe Coin Telegraph on YouTube. Until next time folks, we will see you over and out. Sa.