South Korean speculators have poured into Luna, a cryptocurrency that lost 99.99 per cent of its value last week after its linked stablecoin TerraUSD failed, figuring they have little to lose with prices so outrageously low.
Both coins are linked to Terra, a blockchain platform co-founded by Korean developer Do Kwon, and investors in them have lost about $42 billion, according to blockchain analytics firm Elliptic.
Luna was one of the most popular cryptocurrencies in the world, and its demise, along with that of TerraUSD, wreaked havoc across the cryptosphere, with bitcoin losing about a quarter of its value between May 9 and 12.
Luna, which was worth about $100 in late April, is now trading at a fraction of a cent, prompting a rush of buying from speculators hoping for a miracle rebound, with others clinging to the assumption that it is simply too big to fail.
“Luna was once a major coin of top-ten market capitalisation, so they will do whatever it takes to revive it,” one hopeful investor wrote in a blog on South Korea’s internet platform Naver, without saying who “they” could be.
The writer claimed to have purchased 300,000 Luna on an international crypto market over the weekend for 0.33 won ($0.0003) each.
The Financial Services Commission of South Korea warned individuals against investing in Luna on Tuesday as the rapid rise of purchases entered its attention.
According to a source at the FSC who, as is common for South Korean officials, declined to be named, the number of investors in the failing cryptocurrency increased by more than 50% in just over two days to stand at 280,000 as of May 15.
The majority of the purchases were made by domestic speculators, while there were some foreign inflows, according to the source.
Bithumb and Upbit, two of South Korea’s main exchanges, have announced that trading support for Luna would be suspended on May 27 and May 20, respectively, while Coinone has banned deposits in the cryptocurrency ahead of a likely de-listing on May 25.
The token’s price hasn’t changed much as a result of the purchases. It’s been bouncing around between one-hundredth and four-hundredths of a cent over the previous week.
However, policymakers are concerned about South Koreans’ proclivity to invest in volatile and risky assets such as stocks and cryptocurrencies, particularly among the younger generation.
Their prior enthusiasm had propelled Luna and TerraUSD into the top ten most valuable cryptocurrencies by market capitalization.
However, on May 10, TerraUSD’s 1:1 peg to the dollar was ruptured, and everything fell apart. It was roughly 10 cents on Wednesday.
TerraUSD’s value is derived by complicated computational procedures, related to its partnered token Luna, which is free floating, unlike most other major stablecoins that are backed by other assets.
Under the system, one TerraUSD token could be exchanged for $1 of Luna, and the currencies would be destroyed once exchanged.
If TerraUSD fell below $1, traders were encouraged to buy the stablecoin in order to exchange it for $1 worth of Luna, reducing TerraUSD supply and pushing the price back up to $1.
That was the theory, but the market contradicted it.
Hundreds of furious retail investors took to social media to vent their frustrations, with some even asking Kwon to reimburse them for their losses.
Kwon revealed plans to modify the system so that TerraUSD will be backed by reserves in the future last week, but it is unclear whether this proposal will be implemented.
Because bitcoin trading occurs outside of the government’s regulatory domain, there is little the government can do to protect investors.
(Adapted from Business-Standard.com)