Crypto-Loving S.Koreans Bet On Luna Rising From The Ashes, Worrying Regulator
Believing they have little to lose with prices this ridiculously low, South Korean speculators have spent the past few days piling up on Luna, a cryptocurrency that lost 99.99 percent of its value last week after its paired stablecoin TerraUSD collapsed.
Both tokens are affiliated with Terra, a blockchain platform co-founded by Korean developer Do Kwon and according to blockchain analytics firm Elliptic, investors have lost about $42 billion in it.
Luna was one of the world’s most popular cryptocurrencies and its demise, along with TerraUSD, caused chaos across the crypto spectrum worldwide, with bitcoin losing about a quarter of its value between May 9 and 12.
Worth nearly $100 at the end of April, Luna is now trading at a fraction of a cent — so low that there has been a rush to buy from speculators betting it will make a miraculous recovery, with some holding onto the belief it’s just too big to fail.
“Luna was once a major market cap coin in the top ten, so they will do everything they can to revive it,” one hopeful investor wrote in a blog on South Korean internet platform Naver, without saying who. they” could be.
The blogger said he bought 300,000 Luna over the weekend for 0.33 won ($0.0003) each, using an international crypto exchange.
As the sudden resurgence of buying went over the radar, South Korea’s Financial Services Commission warned people not to invest in Luna on Tuesday.
The number of investors in the failed cryptocurrency rose by more than 50% in just over two days on South Korea’s major exchanges to 280,000 on May 15, according to a source at the FSC who, as is usual for South Korean bureaucrats, refused to be mentioned.
The purchases came mainly from domestic speculators, although there was also some influx from abroad, the source said.
The window for speculation has been limited as Bithumb and Upbit, two of South Korea’s largest exchanges, said they will suspend trading support for Luna on May 27 and 20, respectively, while another, Coinone, will suspend deposits in the crypto. currency has halted ahead of a possible cut on May 25.
Buying has had little impact on the price of the token. It has flopped between one-hundredth and four-hundredths of a cent in the past week.
But the tendency of South Koreans, especially the younger ones, to invest in volatile and risky assets, from stocks to cryptocurrencies, is worrying regulators.
Their previous enthusiasm had helped place Luna and TerraUSD among the ten largest cryptocurrencies in the world, ranked by market capitalization.
But things fell apart on May 10, when TerraUSD’s 1:1 peg to the dollar shattered. On Wednesday, it traded around 10 cents.
Unlike most other major stablecoins that are backed by other assets, TerraUSD’s value is derived through complex algorithmic processes, linked to the paired token Luna, which is free-floating.
Under the system, one TerraUSD token can be exchanged for $1 to Luna, and vice versa, and once the coins are exchanged, the coins are destroyed.
If TerraUSD fell below $1, traders were incentivized to buy the stablecoin and exchange it for $1 to Luna, thus reducing TerraUSD’s supply and pushing the price back to $1.
That was the theory, but the market proved the premise wrong.
As the market imploded, hundreds of outraged retail investors flooded social media with stories of woe, with some asking Kwon to offset their losses.
Kwon last week announced plans to change the system so that TerraUSD will be backed by reserves in the future, but it is unclear whether this plan is feasible.
There is little the government can do to protect investors as cryptocurrency trading takes place outside its regulatory sphere.
