Crypto Wrapped : May 2022

Crypto Wrapped: May 2022

Crypto has had many notable months, but many of them will pale into insignificance compared to May 2022. As TerraUSD’s world gave way from underneath it, the impact as it collapsed reverberated throughout the whole cryptocurrency industry. Markets are yet to recover in full, and downwards pressure has resulted in significant sell offs that have driven prices down across the board. TerraUSD’s sister coin, LUNA, collapsed over the month of May from $90 to $0.00001 and reinvented itself as Luna 2.0 — which then lost over half of its value in one 24 hour period. It’s been a rollercoaster month — here’s how everything unfolded.

On May 9th, crypto markets noticed something unusual happening. The stablecoin of TerraUSD, typically valued within a $0.002 range of the Dollar (as it should do, being a stablecoin), fell to $0.96. Come the early hours of May 10th, TerraUSD was worth $0.80, and alarm bells were ringing. Over the course of the week that was to follow, the stablecoin would continue to collapse to the point where it was worth less than 1 cent. Not a dollar, a cent. The reason for this was that it had been ‘unpegged’ from its position next to the US Dollar — a process that means the value of TerraUSD was no longer tied directly to this commodity. Something was going drastically wrong.

The consequences of this were grave, and widespread in their nature. TerraUSD’s sister coin, Terra (aka LUNA), lost half of its value in one day — plummeting from $60 to $30 a few short hours. Having already had a ropey start to the month, the events that were playing out only exacerbated the misery of its traders. By midday on May 11th, LUNA was worth $5, and on the morning of May 12th, it was worth $1 — it had started the month above $80. Currently, LUNA is worth less than a Dogecoin, and is effectively dead in the water.

Terra now rebranded as Terra Classic, owing to the release of Luna 2.0

The dramatic fall of TerraUSD, after holding steady for the majority of its lifetime.

A lot of controversy still surrounds the events that took place with Terra. Nobody has quite gotten to the bottom of how TerraUSD could come to be depegged, and why it took so long for key players in the token’s recovery to respond. Others note the amount that investors have lost as a result of Terra’s collapse, and the lack of consequence surrounding this. With all that said, Terra has looked to reinvent itself and make it up to its original investors, by releasing Luna 2.0 and airdropping tokens directly to existing holders of what is now TerraClassic, bit by bit. That too collapsed, albeit not to the same extent — just enough to demonstrate an initial lack of confidence in the newly launched token. However, it has shown signs of stabilizing and picking up some of the value that it lost as part of its launch.

Needless to say, the impact of such a significant event was felt throughout the market. Bitcoin was already having a volatile start to the month, falling from just under $40k to around the $34k mark prior to the Terra collapse. As news broke, downward pressure was felt across the board and Bitcoin would collapse to $26k by May 12th. BTC went on to spend most of May trading below $30k, only on May 30th managing to claw above $30k and up to $31k. For a detailed breakdown of the impact felt by Bitcoin throughout the month of May, take a look at our latest Bitcoin market analysis article here:

Ethereum followed a similar path, starting the month trading close to $3k but finishing the month below $1.8k. Tales of woe can be found across the board — pick a crypto and it suffered at some point. The only question would have been how much did they lose, with some losing close to and over half of their value when compared to their monthly starting positions, like XRP, Solana and ApeCoin. With regard to the latter, ApeCoin would fall from over $20 to $5 on the back of the market collapse — although it is worth noting that many markets including APE didn’t get off to the best start as it is. Nonetheless, open up a 30 day graph on any crypto in May and you will see the collapse between May 10th and 13th that can be seen below.

The consequences of a huge bear market throughout May are still being felt. The fact that Luna 2.0 saw an immediate dump upon its re-release is evidence of the confidence that has fallen away from the market as a result of the month that has passed.

With all this in mind however, the fundamentals of coins like Bitcoin do not appear to be damaged long term — as we reported in our May Bitcoin review. Traders may be looking at some of the opportunities available to them this month as cheaper than average, with many tokens well below their month on month value. In addition, the majority of the market is down considerably on their 90 day positions, which may prove to be appealing to traders looking to make an entrance.

One thing that we must look for in June are signs of improving trader confidence, as this will be critical for the recovery of all markets. As the month of May closed, many cryptocurrencies saw a small rally in price, with Bitcoin climbing up above $30k for the first time since the Terra debacle, and Ethereum climbing as close to $2k as it had been through the month. While they are a long way off historical valuations, even a small boost of confidence will have a significant impact on the market.

We should also pay attention to events surrounding Luna, as they are certainly not over yet. Particularly with the release of Luna 2.0, there is still a narrative to be written about the failed crypto. Considering the impact of its collapse on the whole of the crypto industry, any further damaging news still has the potential to create knock on effects that will create the kind of downward pressure we observed throughout May.

In the absence of all of this, crypto should use June to juuuuuust breeeaaaaaathe…

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