The Recent Demise of Bitcoin Prices and The Saga of Terra and Luna Stablecoins
Despite these headwinds, big institutional money is streaming into crypto
There's no question that the recent sell off in crypto is fueling the Department of Labor's attitude. If you think airplanes are risky, all you need is news of an airplane crash to prove your point. That's called confirmation bias. You take info supporting your position to support your position and you ignore all other facts that refute your position.
That's what crypto haters are doing right now. Crypto has crashed. Bitcoin is down 50% in the past six months, but volatility isn't a reason to avoid bitcoin. The stock market has crashed too. We're in a bear market with the worst performance of the stock and bond markets since World War II. Nobody's been talking about banning stocks and bonds from 401(k), are they? Instead, you simply recognize that volatility is part of the game. Bitcoin is the best performing asset class in history, and along the way it has fallen 50% or more seven times. And crypto is not the only thing falling. So is the stock market. So's the bond market.
And we know why all this is happening: COVID, the war in Ukraine, rising inflation, rising interest rates, supply chain problems, food shortages, companies that can't find workers, massive federal debt, rising taxes, a crisis with Social Security, the massive student debt problem, the list goes on and on and on. Nobody would be surprised if we saw another 10% or 20% or 30% decline in the stock and bond markets before we hit bottom. And real estate has yet to crash, but that's inevitable, too. And so, yeah, in the midst of all of this, crypto is falling as well. So I want to highlight for you two things here: institutional investors and Terra and Luna.
The role of big money in the crypto economy
First, let's talk about institutional investors. Starting last year, for the first time ever in crypto, we have institutional investors engaged. They did more trading last year than retail investors for the first time in Bitcoin's history. But in this recent stock market sell off, those institutional investors have been treating crypto just like another part of their stock and bond portfolio. So when they sell their stocks and bonds, they're selling crypto, too. It's as if they didn't get the memo about what crypto is. It's an inflation hedge. It's non-correlated to other asset classes. It's a totally new and separate asset class, not just part of an existing asset class. So that's part of the reason why Bitcoin is down.
Terra and Luna: Stablecoins that are less than stable
But another reason for the current sell off is because Terra and Luna imploded. What are they? Terra's a stablecoin and stablecoins have nothing to do with Bitcoin. You see, bitcoin is an asset like stocks and real estate. People buy bitcoin for the same reason you buy stocks - because you think the price is going to go up. But there's another kind of crypto, a stablecoin. These aren't designed to rise in value. Instead, their prices are stable. You know, stable-coin. They do this, they're stable by taking your money and putting it into US Treasuries. So your stablecoin is pegged to the dollar. It's just as safe as cash, it's just money in digital form.
But Terra and Luna are different kinds of stablecoins, they're not pegged to the dollar. Instead, they're in this category of something called algorithmic stablecoins and this entire category is nonsense. I talk about them in my new bestselling book, The Truth About Crypto. Instead of being pegged to the dollar, they use artificial intelligence to figure out what other digital asset you should buy and sell in order to keep them stable. It's nonsense. The question isn't why did Terra and Luna collapse? The question is what took so long for them to collapse? But that collapse nevertheless in the last week caused broad panic in crypto. And whenever there's a panic, selling occurs broadly without making any sense. Prices are likely to fall further. The lower they go, the better the buying opportunity. Just like with stocks. So you either need to understand what you're doing and why, or you need to stay out. And to understand. I recommend you read my new Amazon #1 bestseller, The Truth About Crypto.