Hello Dear Friends,
I am sure that any of you who invest in crypto are well aware of the most up to date crypto news as you refresh your browser every 15 seconds to monitor your crypto stash. For those of you who are not as finely tuned to the crypto market is in freefall with a lot of first time investors realising they do not have a parachute, and that they also do not like the experience of jumping out of a plane at 10,000 feet.
So, what’s caused this most recent crypto crash?
Have you heard the expression “All boats rise with the tide” which is used to describe working together to share a common benefit, well this would be the reverse of that, The entire crypto market is in a downswing and the main cause can be linked to the fall of a specific coin known as Luna which is linked to the stablecoin Terra. If you’re getting confused by the lingo, it’s okay, let me break it down. A stablecoin uses a variety of methods including code, smart contracts and trader incentives to maintain a one to one dollar ratio (pegged). So TerraUSD is the stablecoin and Luna is its crypto token, which can be swapped and used to trade cryptocurrency. Another common stablecoin that most people know of is USDT or USD Tether, which was designed to sit at 1 dollar USD.
The difference between standard currencies is that government-issued currency is backed by gold held in reserve or the ability of the government to collect taxes to cover the amount of money on issue like the USD. Terra token is a different story as its value is backed by Luna, running on the above mentioned smart contracts. The purpose of coins like Terra is to allow those trading cryptocurrency to make transactions without needing to leave the digital assist ecosystem and worrying about whether the value of their coin will change.
The reason that Luna has lost 99% of its value is due to Terra decoupling from the U.S dollar earlier this week, which caused its price to free fall. This event led to one of the biggest crypto exchanges, Binance, suspending withdrawals of Luna. Once the price of Terra dipped, this essentially created a domino effect that has crippled the prices of all crypto including major players Ethereum and Bitcoin, which just hit their lowest value since December 2020. In fact, cryptocurrency in general is now at a third of its November value with 35% of that dip attributed to this week alone.
As #Cryptocrash trends on social media, many investors have seen this trend coming for a long time and if you follow crypto, you would have noticed the prices dipping steadily over time. A major reason for this is investors seeing the risk and moving their funds into safer forms of investments.
THIS my dear friends is why it’s so important to be diversifying your portfolio into multiple asset classes and looking at investments outside of cryptocurrency. You need to be looking at physical hard assets and alternative investments that will continue to steadily grow over time and not fluctuate wildly as they are supported by true intrinsic value. Our Pleasure Point Mine investment for example has grown strongly over the last 2.5 years, from a value of $5.2m at purchase to $122m in February 2022 and an estimated next value increase to $416m by September of 2022 (yes that was a merciless plug of my own investment product 😊).
Of course, It’s important to remember that all investments including stocks, crypto and alternative investments rise and fall. Like with any and every investment there will always be some risk associated, however, they can be greatly reduced by taking the time to do your research, consult industry professionals and practice self-control to avoid getting greedy.
Remember, the reason cars have breaks in them is so that you can go faster, no one wants to go 200km an hour in a car with no breaks!
If this crash can teach you anything, take this lesson. It is critically important to manage your finances because in the event that something like this does happen, you’re not going to find yourself plummeting to earth from 10,000 feet. If you visit the news sites you’ll see just how many people are suffering right now because they put all their eggs in one basket, strapped that basket to their backs and then got on that plane. Remember to always budget your money and ensure you have plenty to back you up as an insurance policy.
Keep these lessons in mind and don’t be disheartened by this cryptocurrency crash. Use it as a motivating factor to look at diversifying your investment risk.