🧘♂️Calling All Crypto Hodlers
Market Meditations | May 19, 2022
Many people were ambushed by the collapse of the Terra network. Few people saw it coming, so when it happened, not many of us had exit strategies in place. As confusion and misinformation spread, the bleeding continued.
Even now, the future of Terra is uncertain. No one knows if the moon will ever rise again.
What do we need? Probably a summary of the main events that have unfolded, the big interpretation of those events and what the powerful lessons we can learn are.
Good thing that’s exactly what we will be sharing in today’s newsletter.
- The Only Terra Timeline You Will Ever Need
- Coinbase’s Think Tank… 3,2,1,Think!
- China Has Stopped Mining Operations. Or Has It?
⏰ Top Headlines
- Revolut’s planned native token will reward customer loyalty, Storonsky says
- FTX US to launch stock trading against stablecoins
- Hashed Wallet Takes $3.5B Hit, Delphi Discloses Loss After Terra’s LUNA Collapse
- Tether reduces commercial paper holdings to improve quality of reserves
? Goodnight, Moon
Prelude to Poverty
The writing was on the wall. Sugar-coating might make the medicine go down more easily, but it won’t do you any favors. There were many warning signs along the way ignored by retail investors and whales alike.
- March 14th: Terra Founder Do Kown accepts a bet with anonymous Twitter user GiganticRebirth for 10 million dollars that LUNA’s price will be lower in 1 year.
- April 22nd: CoinDesk published an article based on a paper published by the Wake Forest Law Review titled “Built to Fail: The Inherent Fragility of Algorithmic Stablecoins” which decisively identified weaknesses in the coins’ model.
The Beginning of the End
Looking back on how things… went down (too soon?), we all should have taken a closer look at the conditions and tokenomics behind UST. If that weren’t enough, confluent warning signs continued popping up.
- May 7th: A whale dumps $285 million worth of UST in a massive sell off. LUNA’s price drops 20%, and UST briefly loses its peg, falling to $0.98.
- Do Kwon responds on Twitter, shrugging off the attack as insignificant, with posts like “I love chaos”.
This was the time to act, but many of us had our heads buried so deeply in the sand, we couldn’t be bothered to consider the unthinkable.
- May 10th: The price of UST dropped to $0.75 while volume spiked to nearly $9 billion.
- The next day, the bottom fell out with levels plummeting relentlessly until the value of UST dipped below $0.25.
TradingView illustrates how swiftly and severely the price decline of UST spiraled out of control.
It never recovered.
A play-by-play explanation of the progressive price action helps to understand why so many got wrecked. Many thought Terra was too big to fail. It turns out the bigger they are, the harder they fall.
The Way Back
- May 16th: Luna Foundation Guard announced that it had almost completely depleted its holdings trying to defend UST’s peg, revealing billions of dollars in
- May 18th: The Terra Builder Alliance shared a plan for a united proposal of Terra 2.0 on Twitter.
- Terra’s existing blockchain will be forked into a new, separate one – only without dependence on UST. The network as we know it will take on the new name “Terra Classic”.
- The new LUNA token will be airdropped to those willing to stake LUNA classic token and UST, along with other tokens central to the ecosystem. New LUNA tokens in active circulation would be reset to 1 billion.
Throughout the development and growth of UST and Anchor Protocol, the Terra network has consistently been criticised for alleged “ponzinomics”, but it can be hard sift through the noise of both permabears and permabulls.
Even if users raised an eyebrow at the events leading up to Terra’s collapse, without proper education they were likely paralysed by fear, instead of confidently executing an exit strategy.
Don’t be a victim. Educate, plan, and execute. Start here.
? A Progressive Partnership
Since taking the company public, Coinbase has formed a productive relationship with regulators. The firm continues to work towards positive change within the space and has announced that it will be launching the first of its kind ‘crypto think tank’ called the Coinbase Insitute.
- The newly formed crypto native think tank announced its mission to “accelerate rigorous, novel research and bring together the best minds” to fuel progress within the digital asset space.
- The Coinbase Institue will be headed by Hermine Wong who has a strong resume regarding regulation and previously served in the Division of Economic and Risk Analysis at the SEC.
- The initial advisory board has been formed and features top-class academics from the most prestigious universities across the US, such as Harvard, MIT, Duke and John Hopkins.
- The Coinbase Institute will work similarly to traditional economic think tanks but instead focus on crypto, blockchain and Web 3.0 related issues.
- The Institute has kicked off its first research with work on ‘Crypto and the Climate’, which sparks conversation on the high energy usage of proof-of-work (PoW) blockchains.
- In addition, the first ‘Monthly Insights Report’ has been released, which focuses on providing real-time comparative analysis of the cryptocurrency market and traditional finance.
This initiative creates a positive and progressive outlook on regulation which should only push the space further.
?? China Underground Mining Operation
You may remember last year when China imposed a crypto ban back in May. There was a lot of speculation as to what country would take over since China was the biggest crypto mining hub in the world. Recent data suggests, though, that China is still one of the leading countries when it comes to mining bitcoin (only second to the U.S).
- According to data from the Cambridge Centre for Alternative Finance (CCAF), China has re-emerged as a major bitcoin mining hub.
- From September 2021 to January 2022, traffic from China accounted for roughly 20% of bitcoin’s total hash rate.
- This uptick in activity comes after the number fell to roughly 0% in August following the bitcoin ban in China.
- This means that after showing no activity in August, they likely moved operations underground and were back up and running by September.
- Miners most likely have access to off-grid electricity and have small-scale operations that do not raise red flags to the authorities.
- The CCAF said, “It is probable that a non-trivial share of Chinese miners quickly adapted to the new circumstances and continued operating covertly while hiding their tracks using foreign proxy services to deflect attention and scrutiny”
More than anything, this goes to show that cryptocurrency can have the ability to stretch beyond a government’s reach.
- CBDCs are not Bitcoin. CBDCs are not “blockchain”. CBDCs are not “crypto”. They’re 1984 on ******* steroids.– Dan Held
- Assurance Opinion Once Again Re-affirms Tether’s Reserves Fully Backed; Reveals Significant Reductions in Commercial Paper and Increase in U.S. Treasury Bills tether.to/en/assurance-o – Tether
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