The sharp drop in the price LUNA has made panic increasingly evident, suggesting the possibility of predicting its collapse. The insolvency of traders caused the price of Terra token to crash by 98%, losing most of its market capitalization.
The crypto market has struggled with a dangerous hurricane that has affected all its participants. On May 13th, the price of the cryptocurrency LUNA, which has drawn a lot of attention, crashed to USD 0.005.
Between May 11th and 12th, the value of the Terra (LUNA) token plunged by more than 99%. It went from USD 1 to a low of less than USD 0.0083 in 24 hours.
LUNA is trading at around USD 0.000372 after reaching a maximum price of above USD 119 less than 40 days ago. Amid the plummeting of the cryptocurrency, panic has become increasingly evident, suggesting the possibility of predicting the collapse of LUNA.
The Inherent Characteristics of Stablecoins Contribute to the Decline
Fiat money or an equivalent asset back the stablecoins USDT by Tether and USDC by Circle. However, the design of the cryptocurrency LUNA allows it to maintain the peg through a mathematical algorithm and active trading. UST has recently lost its 1:1 parity with the US dollar due to high selling pressure for the massive drain of Anchor.
As the on-chain mint-and-burn mechanics tie them together, that massive short led UST and LUNA to sharp drops. Then the disconnection between the two crypto assets happened.
Traders declared insolvency when they realized that USD 1 of LUNA was no longer worth USD 1 of UST. For that reason, the Terra token crashed by 98% of its price, losing most of its market capitalization.
LUNA Can Teach a Lesson to Investors
Amid the drop in the price of LUNA, many investors may be concerned about how to prevent it from happening to them. The characteristics of altcoins determine the volatility and high risk of the native cryptocurrency of Terra. Leading cryptocurrencies like Bitcoin and Ether are undoubtedly more resistant to risk.
The Bitcoin market has recently been unstable as it is undergoing a crypto winter. However, some traders still earn more than 1000% ROI in a bearish market and can multiply their ROI with 100x leverage.
An Example of How 100x Leverage Works
To better understand 100x leverage, it is relevant to know its close relationship with margin/leverage trading. Margin is the minimum percentage of the amount needed as collateral to open an increased position.
Leverage is the amount by which a margin trader can multiply his position during the transaction. Therefore, he can increase his exposure and potential profit by 100x if he opens a trade with 100x leverage.
The following example will illustrate how 100x leverage works. A trader can use 1 BTC to open a long contract when Bitcoin is at USD 30,000. The next day, the price of Bitcoin will increase to USD 35,000, so the profit will be USD 5,000. That means that 100 BTC/USD 35,000 is equivalent to around 14.2 BTC, making the ROI 1420%.
By Alexander Salazar
