You Snooze You Lose

Market Meditations | May 17, 2022

In times of crisis, failing to act quickly enough can be the difference between rich and rekt. There are no financial gurus wandering among the injured performing triage on who can be saved. Every LUNA and UST holder was on their own last week with a decision to make, and they fell into roughly four categories based on when volume surges were seen:

  1. Peg Watchers – on May 8th hourly trading volume suddenly quadrupled, as UST de-pegged for more than 4 hours. This had happened a few times before, dropping as low as 0.96 in May 2021. The ultra-cautious (or those with inside information!) cashed out here.
  2. Decisive Sellers – when the peg dropped to a new low of $0.75 on May 10th, volume shot up again peaking at nearly $9 billion. This group was led by panic-sellers offloading into the dip and the more astute traders selling into the relief rally back above 90 cents.
  3. Reluctant Sellers – the big crash on May 11th took people’s breath away and sellers who were reluctant before were now relieved to be able to get out when it briefly bounced back up above 80 cents.
  4. Bagholders – unfortunately, those who woke up with heavy bags on Friday the 13th were left feeling the weight upon their chests. Volume dead as a dodo and price unresponsive below 25 cents.

Some traders or investors may have suffered from a freeze response, which can be overcome through training and having a plan in place.

There are parallels here with the decisions firefighters and soldiers have to make in the field, and researchers have found that “redundant deliberation” normally happens when no standard policy (read: system) is in place, or when they encounter a new situation.