Investing in crypto is a risky business but there are a lot of people that made a fortune from it. Doing the proper research can increase your chances to make some money but also help you avoid crashes like what happened with Luna. Investing only in BTC can be a smart move but it takes a lot of time to gain a profit if you invest on time.
This had a huge impact on the crypto market because people thought that stable coins will never change. Some smart investors did the right move after seeing the NFL lines and made a few bets instead of keeping the coins and losing them after the crash. It’s a small line between gambling and crypto investing so make sure you know where you are spending money first.
How Do Stable Coins Work?
The easiest way to understand how stable coins work is to look at them as a replacement for a dollar. Tether is one of the biggest coins on the market because it has over $70 billion in circulation which includes transactions and trading. It’s the most important coin after BTC and ETH and it has a unique usage compared to most other coins.
There are other similar coins that should represent a dollar but their circulation isn’t as big. One of the ways it works is that they should have a replacement fiat currency for each Tether which means that for every 1 Tether there should be 1 dollar in reserves. But, there are some that are backed by other cryptocurrencies.
TerraUSD is made in a great way because the algorithm will add coins when the price gets too high and it can burn the tokens from the supply if the price is low. This is a perfect method for stable coins because the supply is manipulated.
Why Luna Crashed?
There are a lot of speculations about why this happened but the result was that instead of 350 million in supplies, at one point there were 6 trillion Luna coins. This directly affects the stable coins which are connected to Luna as a backup currency.
Hyperinflation can occur for many reasons and some assume that a large number of coins were transferred at one point which made everything unstable. Many took the arbitrage opportunities that happened in a short period of time which made the whole mess bigger.
This means that the price of 1 TerraUSD dropped by 1% and people used the opportunity and started to trade between Terra and Luna to make a profit. This made the whole thing unstable because all of a sudden you have millions of coins pouring into the supply.
Did This Happen Before?
Stable coins didn’t exist in the beginning, but there are crashes happening every day. There are a lot of coins that are considered scams because they are meant to reach a certain value and the devs that made it would just pull out all the reserves and sell them.
This is why you should focus on research before investing in any coin and you shouldn’t rely on stable coins. There isn’t a safe option but cryptos like BTC and ETH are considered safe because they are the top 2 coins that are always staying at the top.
The Market Is Still Alive
This may be the perfect time to start investing in Bitcoin or ETH if they are going to release the 2.0 version. Ethereum actually took the first place in 2022 when it comes to the trading volume so it’s slowly becoming a better crypto for investment. It can also be the best time to start mining again because there will be a lot of news about these changes that will bring new investors.
Bitcoin is at its all-time low this year and no one can say for sure for how long it will stay there. But, this happened before meaning that somehow it will find a way to get to new all-time highs.