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Why did Terra (LUNA) collapsed? What is the Death Spiral?

terra chart

The cryptocurrency that went from $54 to only a few cents in less than a day.

For the past few years, Terra has been building its name as a leader in the stablecoin space. Terra is a layer 1 blockchain built on top of Cosmos that specializes in stablecoin transactions. In late 2020, Terra introduced its own algorithmic stablecoin, TerraUSD (UST). This stablecoin was always supposed to be worth $1.00. However, this stablecoin quickly lost the stability it was meant to have and fell sharply. Many are wondering if the Terra UST failure is the beginning of the end for the project or if there is still room for a recovery.

Why is Terra (LUNA) down?

Terra is a blockchain protocol that hopes to increase the general use of stablecoins in the open economy. Stablecoins are known for their pegged prices, a stark contrast to the extreme volatility seen in most cryptocurrencies.

LUNA is the token that feeds the Terra protocol. Its primary use is to provide liquidity for trades and keep the price of UST stable. Users can stake their tokens to provide merchants with liquidity and earn rewards. This liquidity is also used by the Terra protocol to keep the price of UST at a constant $1.00. However, this system failed and allowed the price of UST to drop to $0.30.

To keep the price of UST stable, Terra will burn or mint LUNA tokens. Since LUNA is used to support UST, influencing supply can be used to keep the price of UST constant, at least in theory. When the price of UST drops below $1.00, LUNA is created and UST is burned. This increases the amount of LUNA per UST and raises the price of USTs. Conversely, when UST rises above $1.00, LUNA is burned and UST is created. This decreases the amount of LUNA per UST and reduces the price of UST.

While this idea should work in theory, the creators of the project were not prepared for the possibility of a massive sale.

The Death Spiral

During the first two weeks of May 2022, some large UST withdrawals were made. This sale of UST increased supply and lowered the price of UST. When the price dipped slightly below $1.00, many panicked and also sold. This caused the price to drop even further. In an attempt to combat this, Terra began burning UST and minting LUNA tokens. However, his system had a maximum amount of UST that could be burned. Once that cap was reached, the stablecoin began to free fall.

In the case of LUNA, when UST fell, many also left their positions in LUNA. This is because UST is an integral part of Terra’s protocol, so its failure could mean bad things for LUNA. Then the price of LUNA started to drop due to the liquidation of UST. However, LUNA’s supply was also increasing rapidly in an attempt to keep the UST price stable. This further decreased the value of LUNA.

In the last week, LUNA has dropped from almost $90 to around $1.00. Investors who owned LUNA lost almost all of their position.

Terra (LUNA) Price Movements

During the second half of 2021, and until the fall of UST, LUNA had been rising steadily. In fact, it appreciated over 1000% from its lows in May 2021 to highs of nearly $120 in April 2022. This surge was due to the steady increase in demand for stablecoins and UST. LUNA rose continuously until May 2022 when the price of UST crashed.

After UST started to drop, LUNA dropped more than 95% in just one day. The fragility of the project was shown, with many abandoning their positions as more holes began to appear. Additionally, the market capitalization fell from nearly $30 billion to just over $1 billion.

Cryptocurrency market cycle

One way the cryptocurrency market can be measured is by comparing Bitcoin to other tokens. If altcoins, or any non-Bitcoin token, outperform Bitcoin, then it is considered “altcoin season.” It is currently not altcoin season, which means Bitcoin is outperforming at least 75% of the top 50 cryptocurrencies. In fact, Bitcoin is outperforming almost all other major tokens.

While Bitcoin is outperforming other tokens, this is a relative term. The crypto markets have been suffering for some time, with major tokens down more than 50% in recent months. While this price drop may not be the direct cause of LUNA’s decline, it could certainly be a major factor.

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Cryptocurrency, Horror Story

Hackers sold my bitcoins cheaply to themselves to avoid the Poloniex alert system.

In early June my Poloniex account was hacked. It took almost no time for the hacker to empty the entire account with the 10 BTC in there. The hackers didn’t just transfer the BTC though, instead they used the web interface to do multiple trades. They couldn’t do a straight transfer because Poloniex would use email verification to perform withdrawals and this would have obviously alerted me. I would have been able to put a hold on the account. The hackers sold my coins to their for a low price then sold those coins back to me at a high price. Needless to say, after repeating this for 2 hours, the hacker was able to essentially drain the 10 BTC from my account. I immediately emailed Poloniex as soon as I found out and filed a ticket with them. This is the response I received:

We have identified the accounts involved and they have been banned. Unfortunately, as is normally the case in these situations the attackers immediately withdrew the majority of the coins and as these transactions have now left our system and have been confirmed by the blockchain then they are outside our control. We will continue to investigate further and see if we are able to recover any of the coins that were not yet withdrawn.

I’m taking the time to post and share this story for a few reasons.

First, to warn everyone to protect their accounts properly! Always use Two factor authentication! I was a lazy idiot and I didn’t do this. I thought it was too much of a hassle to grab my phone each time to log in. This would have protected my account from the hack and saved me $25.000!

Second, I’m trying to bring attention to my story in hopes that Poloniex will be able to do something to help me recover my lost coins. I really doubt this will be the case, but i figure it’s worth a shot.

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Cryptocurrency, Horror Story

Never store your Bitcoins on a cheap USB!

I started mining in late 2009, when Bitcoin was still new. Mining was just a hobby and wasn’t done by any professionals. I got into mining for fun, not really thinking it would ever amount to much of anything. I was testing my normal PC hardware and GPU on mining. At that time, even a single card could mine quite a few coins per day with such a small size blockchain. I mined for a pretty good length of time, but as the Bitcoin program grew in size to several gigabytes, my GPU couldn’t handle the mining anymore. I wasn’t interested in upgrading my system, so I deleted the software and backed up my encrypted wallet files on a USB stick. I figured keeping my keys offline was the smart move because that way they couldn’t be hacked or anything. They were hardly worth anything at the time, but I still wanted to keep them since I’ve already done so much work.

Around the end of 2013, the Bitcoin price peaked to  under $1000 USD and caught my attention, reminding me that I still had a USB-stick full of it. I thought it would be an excellent time to cash out some, or even all of it. I eagerly plugged in my USB stick to load the encrypted files, but to horrendously find out that the stick had died. There was no water damage or heat damage. It died cause it was too old! It was one of those cheap Chinese USB sticks where it felt so flimsy that it would snap in half if you pressed too hard. All my Bitcoins are now forever lost… Now I cringe every time I hear the word Bitcoin, thinking I could have been set for life! Worst mistake of my life.

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Cryptocurrency, Horror Story

How the IRS want me to bend over backwards to torture myself over when reporting Bitcoin taxes

I have been day trading cryptocurrencies for the past few years and I have made a LOT of money doing this. Because of the nature of day trading, I have made thousands and thousands of orders across dozens of different exchanges and accounts. This has resulted in me making a massive amount more than I would have if I just followed the HODL principles that lots of people seem to blindly follow. I’ve made a lot of money and I understand that the good ol’ U.S. of A. wants to get a fair share of my hard earn profits. This is no different than if I was trading stocks or anything else and I’m more than happy to pay them.

The problem is that the IRS demands that EVERY SINGLE TRANSACTION is to be recorded. And the IRS also expects that every single one of my thousands upon thousands of trades must have an attached USD value (when none of them actually have any because it is done in coin pairs). I mean what is the point in calculating a ETH to BTC trade in USD? What is the point in recording the transactions when I trade them back and forth a second later? This isn’t even bringing up the point that the USD value or each of these cryptocurrencies fluctuates by a massive amount on a minute to minute basis. Changes of 1% or more happen from minute to minute. Changes of 10% are common within an hour. To have to try and calculate the fictional USD value of each trade when it occurs is pure nonsense. I have done so many transfers that on multiple occasions my trade history has been totally wiped out. So even if I had the time and motivation to sit down and do the work on each transaction it’s not even possible…

Finally, if the IRS thinks my calculation is incorrect or somehow off, it will be up to ME to prove otherwise, so I’ll essentially be “guilty until proven innocent”.

I’m going to a tax attorney or CPA and have them deal with it, but even then, I have a strong feeling that they will just be as clueless as me. I’m hoping to pay it off as a capital gains tax and be done with it. I’m more pissed on how much headache I have to go through to report this than the ACTUAL money I am giving up…

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Cryptocurrency, Horror Story

What it feels like to be an bitcoin early adopter? I could have been a millionaire.

I bought acid for “$200,000”. Sounds crazy? Well here’s a small journey of a young adult discovering crypto to becoming where I am now (mid 20’s). A successful man with a wonderful job, a successful crypto trader (not crazy, maybe 7k gains the past year), but someone who could have been a millionaire.

So around 2009, I started getting into pot as any bored Northeastern American boy likely does. Being the poorer kid at the rich school leads to a lot of weird feelings, seeing all the toys the rich kids have and seeing them as bored as me. We are talking dirt bikes, top of the line gaming, rifles and guns galore. Daddy owns boats and a yacht. And me? Well my family was getting by around 80k a year total. Luckily those same kids had the drug connections. Pot back then of course was a weird thing and still pretty big deal in our area, like it is gonna ruin lives and yada yada yada.

But ok enough of that. I had a friend that blew glass and made pipes and jewelry, and, he tended to have his ear to the ground better than me. Let’s name him Dan. We graduated high school and started college, and, we both wanted ways to make more money. So Dan heard about “the Dark Web,” the mystical awful place that we all probably know well now (but back then, it was fucking crazy). At the time, the Silk Road was in its first incarnation and we had a field day when we discovered it. We found all the drugs we wanted to dabble and try (mainly psychedelics, we knew to avoid the dangerous stuff). Guns and a number of other illicit materials were available too.

That was a shock obviously and then we discovered. Huh…. They are paid by…. 
Bitcoin?

And boom, we dove in. We sold his pipes and glass work to buy acid, ether (not ethereum!), shrooms, pure mdma, dmt whatever. It was coming straight to our door. It was amazing. What a summer, exploring and discovering the world in a new light. We were buying from a guy in Arizona who basically said he was a biochemist at university and refused to say anymore. I think it was Walter White.

But back to what matters. Bitcoin. The Blockchain back then was simply just an anonymous payment where we could get anything. Of course the danger of this also shows in other areas too, but whatever, enough drug crap. Bitcoin was worth about… Maybe 5 cents or so when we used it? We obviously went through a lot. The biggest thing in my mind is remembering at the height of our escapades BTC hit a dollar. We had 300 at the time and spent it on cannabis seeds and a few other final parting gifts. We both got yelled at by our ISP’s for torrenting games and music, so we got spooked.

So 300 dollars of bitcoin basically.
300 bitcoin.
Let that sink in.
300…

Flash forward to April of this past year, a coworker and me talked crypto and I knew it grew… I knew how much, to be honest I see it as hindsight. We never knew it would be what it is today. We literally had what would have been about 2 mil then. I traded all through the year successfully and saw it grow. By the end of the year BTC was worth fucking 18k. The 300 btc would be 5 mil. So doing the math out, I bought acid for likely around $200,000.

Yeah. It hurts a little. But at 17, 18, you don’t think for the future. No regrets. I got to watch this journey of technology and currency in a very different light and I’m proud to still be a part of this. More active than ever, here’s to crypto future and changing the world. We are going to be the creators of our new world. Cheers!

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Cryptocurrency, Horror Story

Always research your coins! I lost 400 bitcoins investing in altcoins.

I made pretty much every single stupid mistake possible and when I look back I just want to kick myself in the ass. That said, feel free to laugh at my stupid mistakes, but hopefully learn a thing or two and not make the same mistakes that I did.

In May I bought a significant amount of Bitcoin (just over 500 coins). I really had faith in the technology and in the future of Bitcoin. My plan was to hold them forever as pretty much everywhere I looked, analysts were predicting great things and I really felt that it would easily hit somewhere over $10K before the end of 2017. If I had done the right thing and HODL then I would be sitting pretty with a huge profit, but obviously I didn’t do that. I started to read about altcoins and some of the incredible profits people were booking just by doing some short term trading. I decided the action was too hot to dismiss so I started off with Antshares (now re-branded as NEO, obviously not a very good sign). I put 10 Bitcoins in to Antshares and within 3 days it had gone up enough that I had made around 10 grand. I thought there was no way that I could see that kind of growth and profit just sticking to Bitcoin so I came up with a new strategy. I would buy altcoin low and sell high, because I figured that was the easiest thing in the world to do. It really did seem like a pretty foolproof strategy. Especially as long as I didn’t panic and I made sure to HODL.

By the time the end of June rolled around I had invested almost all of my Bitcoin into altcoin. Initially it just kept going up and up. I was in heaven and I literally thought the sky was the limit. There are a lot of things I should have done differently, like keeping more in Bitcoin, like slowly booking some of my altcoin profits and transferring back into Bitcoin or maybe just researching the altcoins I was putting my money into. I didn’t do any of those things and it cost me. I won’t give you the full list of all the altcoins I bought and how much each of them lost, but just know that the average altcoin I put money into lost about 60% of its value and after pouring around 500 BTC into altcoins I now have a value of about 100 BTC.

I’m sure many people might be asking why I didn’t put in stop losses, or why I didn’t book profits or why moved over so much money into altcoins in the first place. The one and only answer is GREED. I thought it would just keep going up and I was too stupid to put any kind of security in place in the off chance that it didn’t. I know how stupid this was and how stupid I am.

I still kept all the altcoins even though they are at a loss. Once they started going down, I knew the only response was to HODL and just pray that they would go back up. Even though though I am so tempted to sell them all and stop any future losses. I’m just hoping that they will get back to the original value, so I don’t need to take the huge losses. I know that BItcoin is still THE investment for the future and I would do anything to go back and undo those trades where I gave away my BTC for nothing.

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Cryptocurrency, Horror Story

Attempted to buy a girl’s virginity with bitcoin, but it took too long…

I am a pretty big nerd and I haven’t had very much luck with women in my life, but I have been able to earn some money on the whole Bitcoin gold rush.

I was looking through a forum and came across a girl in Russia selling her virginity. I’m a virgin too, so I thought it could actually be romantic or something. She was 18, so the whole thing would be legal (if slightly shady and maybe a little pathetic). So I chatted with her a bit and she seemed like a pretty awesome girl and I really thought that there might be something there. So finally I sent her the 1.5 BTC she had been requesting, but the transaction was pending so long that by the time she acknowledged she had received the BTC, she said that it was too late.

She had already had sex with 3 guys and 2 of them was for free!!! I can’t believe it because not only am I still a virgin, but now I also wasted 1.5 BTC for nothing. She isn’t even talking to me anymore. What do I do? How do I even get my Bitcoins back?

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Cryptocurrency, Horror Story

Your bitcoins can actually “expire” with mining pool accounts.

I had done some Bitcoin mining a number of years ago. I was part of a mining pool, but stopped doing that because I didn’t think it was going to be that profitable. I hadn’t really thought anything about it until the recent huge run up of Bitcoin with all the news and everything, gaining over 2000% in 2017. I was obviously very excited at the prospect of how much my old BTC would now be worth (I was thinking in the neighborhood of $50,000-$100,000).

I went to log into my account, but couldn’t log in anymore as it said my account had been deactivated. Then I went back to scour through my email account and found an email from the mining pool saying that my account hadn’t been used in over a year and would be deactivated in 20 days if I didn’t log in. Needless to say I didn’t read the email and obviously didn’t log in to keep my account active. So just a warning to everyone, keep your mining pool accounts active and always READ your emails or you may lose out on a chance of a lifetime!

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Cryptocurrency, Horror Story

Changelly secretly monitors and waits for the chance to skim money off your transactions.

I want to make sure that no one else uses Changelly as they are not honest and they out to exploit their users. It may work for you for a few times, but in the end you will get burned and when you do it will for some serious cash!

I had done some small transactions on Changelly before, so I was comfortable with the service and everything else. But for some reason this time was different. I sent a large amount of Bitcoin and it was shown on the Blockchain that they received it, but I still hadn’t received the Bitcoin Cash I converted for. It was over 10+ hours after the transaction had been confirmed.

In the meantime, as I was waiting for my transaction to confirm, there was a HUGE pump on Bitcoin Cash. I was obviously really excited, as even in that small time frame I was set to book a significant profit (almost 50%). I was already counting my money and was pretty happy about the whole thing while I was still waiting to receive my BCH.

Imagine my surprise when I finally received my BCH (almost 12 hours after initially sending it) and it was at the current exchange rate, not the rate when I transferred my Bitcoin!!!!

So basically I believe that Changelly takes your coins then waits to see what the market will do:

  • If there is a run on the coin, they take all your profit and then send you a lower amount than you should receive.
  • If they get your coins and the market goes down, they just give you the regular amount you should receive.

There’s no way they can lose, since they are getting coins that aren’t theirs and are then holding on to them (for short time periods) to them profit on them.

I sent them an email complaint and received a support ticket number, but I didn’t hear anything back for over a weeks. All I received was automated emails surveying my satisfaction. Really!?! They hadn’t even done anything to help me. I’ve submitted so many other tickets, but each ticket just keeps getting cancelled or ignored.

All you need to do is do a quick search on the Google for “Changelly” and “ripped off” and you will find lots of stories like mine.

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