Nightmare on Crypto Street: Investors share their pain as TerraUSD stablecoin crashes

IT started as a small thrill, and hopes that the US$1,000 invested in Terra’s USD (UST) will repeat what Bitcoin did for its investors when it skyrocketed from US$1,000 to US$20,000 in 2017.

That dream came crashing down this week. 

Speaking to The Business Times without wanting to be identified, a young investor shared the appeal of these virtual assets that exist entirely on the digital realm.

“My friends have been talking about cryptocurrencies, the returns they were getting, and how you don’t need a lot of money to start.”

That ignited the interest in cryptocurrencies, and the young man started depositing his savings on a regular basis over the past year. 

But mid-week, he lost his entire US$8,000 investment, when Terra’s UST lost its 1-to-1 peg to the US dollar, and is now trading at US$0.18. Sister token Luna - which is burnt to create UST -  is now worthless. The meltdown sent shockwaves down the entire decentralised finance (DeFi) industry, prompting platforms including Binance - the world’s largest cryptocurrency exchange - to temporarily halt trading in Terra tokens. 

“No one expected the crash and the magnitude is shocking,” said a young lady, who dabbles in cryptocurrencies.

“This is similar to the dotcom bust when all of a sudden, the tech bubble burst and stock prices came crashing.” 

She has been lucky. She invested US$7,000 in Bitcoins in 2017, and sold them at US$43,000. “When Bitcoin continued to surge, I felt very upset at first that I sold too early, but I did make a tidy sum,” she shared.           

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Unlike the early days, the cult world of cryptocurrencies - rife with its own language and esoteric rules - is no longer confined to “techies” or “nerds”. These days, Investors are typically in their 20s, even though teenagers - who have made a killing in cryptos - have been showcased at promotional seminars overseas. 

British YouTuber and rapper JJ Olatunji, 28, shared that the US$2.8 million he invested into Luna had plummeted to a new valuation of less than US$1,000 in a day. 

There are also more trading platforms offering cryptocurrencies, and many more offering transactions in local currencies. They are also easy to use. For example, MoonPay allows non-US residents to buy UST instantly with a credit or debit card, bank transfer, Apple Pay, and Google Pay. Investors can buy a little or a lot for as little as US$30.

Vijay Ayyar, vice-president for corporate development and global expansion at Luno, said: “Generally, customers familiar with UST would be considered a bit savvier than the normal, average customer that knows and is aware of cryptocurrencies such as Bitcoin and ethereum.”

“These young investors are sold the decentralised finance (DeFi) industry story as a concept for their generation, and UST was part of it,” said one parent, whose child has been burnt by the UST collapse.

He reckoned: “One of life’s bitter lessons. Take it as tuition fees for learning to refine his investment approach.”

But not everyone seems to have learnt their lesson, and greed always prompts irrational decisions. Online forums are abuzz with people asking if it is time to “buy on dip” when UST was crumbling.

Someone even posted he “bought 10,000 of Luna for a pocket change several hours ago, now it’s US$0,0000038 lol (laugh out loud)”.  

While cryptocurrencies may have lost some of their shine this week, supporters believe they will survive the turmoil, and continue to grow as they sift out the occasional “bad eggs” like Terra Luna.

Like one parent said: “Right now it is UST. In the past we’ve had dotcom bust and if you go further back, tulip collapse, the craze for tulip bulbs in the 1630s.” 

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said the dust seems to be settling on cryptocurrencies.

“Terra and Luna are now worth almost nothing and probably won’t regain the investors’ confidence, and Tether, another stablecoin, had a mini crash to US$0.95. But it recovered fast before things got serious, and Bitcoin returned past the US$30,000, which is a sign that confidence in the broader sector may not have been damaged as much as we first feared.

“This being said, the crypto investors will certainly be pickier in selecting their holdings from now on, as the Terra incident comes as a warning that the cryptocurrencies can crash as fast as they emerge,” she warned.