Terra (LUNA) has received a decent amount of attention in cryptocurrency due to the increasing popularity of algorithmic stablecoins. This has led to speculation that LUNA could be a good investment when the crypto market inevitably crashes.
This, in our opinion, is a decent enough reason to invest in LUNA. However, it’s important to note that a lot of crypto projects are working to develop an algorithmic stablecoin, and choose the one that will prove successful in 5-10 years will likely be difficult.
With that out of the way, this article will cover all you need to know about LUNA along with some reasons why it’s a good investment and some reasons why it’s a bad investment in order for you to make an informed decision about an investment in it.
What is Terra (LUNA)?
Terra is actually its own blockchain, which we do like. It does not exist on Ethereum or another layer 1 chain like Solana or Cardano. The native token of the Terra blockchain is Luna, which is what we will use to reference the project.
The Luna token has some functionality that includes governance, mining, issuing stablecoins, and paying fees on the network.
The Terra blockchain itself is actually very interesting. It’s a decentralized finance (DeFi) focused blockchain that has its own algorithmic stablecoins. The peg on the stablecoins is maintained by the supply of Luna.
Terra is actually the second largest DeFi platform when measured by total value locked (TVL).It’s TVL stands at around $18 billion, which is only surpassed by Ethereum.
That’s the basic rundown of Terra – it’s a DeFi focused blockchain that has its own native algorithmic stablecoin.
Is Terra a Good Investment in a Crypto Market Crash?
Whether or not Luna is a good investment during a crypto market crash comes down to a few criteria. First, we will cover the reasons why Luna might not be the best investment during a crypto market crash:
Reasons to Avoid Luna During a Crypto Market Crash
The Stablecoin Could Lose It’s Peg
The biggest issue, in our opinion, with investing in Luna during a crypto market crash is that the Terra stablecoin (UST) could realistically lose its peg. Algorithmic stablecoins have a tendency to lose their peg during market crashes and rarely when the market jumps.
Now, the problem with UST losing its peg is that Luna is used to maintaining the peg. If the peg is lost, then the price of Luna will inevitably crash as Terra must sell Luna in order to maintain the peg.
No One Knows How Algorithmic Stablecoins Perform During a Crash
The other issue with investing in a blockchain tied to an algorithmic stablecoin during a market crash is that no one knows how an algorithmic stablecoin will perform during a crash. This is because algorithmic stablecoins are a new thing in cryptocurrency. They were not around during the bear market from 2018 to 2020.
The logical assumption is that these stablecoins will lose their peg during a prolonged market downturn. Losing the peg could prove disastrous for an investment into the blockchain.
Reasons to Invest in Luna During a Crypto Market Crash
We know the previous two points make it sound like an investment in Luna at the current moment is essentially doomed for failure. But there really is no way to know for sure. Here are some reasons why an investment in Luna during a market downturn could be a very lucrative idea.
The most obvious reason to invest in Luna during a market crash is that you can purchase Luna at a great discount. This is especially true during a prolonged bear market that often sees altcoins drop over 90%.
The obvious downside to this is that the price may never hit the previous all-time high. However, a solid project like Terra likely has a good chance of breaking its all-time high during the next bull market.
If you want to make a large amount of money in cryptocurrency, then investing in altcoins during a bear market is the way to do it.
Yes, it’s risky because not all altcoins will recover, but that is how people make (and will continue to make) money in cryptocurrency. Purchasing a cryptocurrency like Luna after it has had a massive price increase is usually a recipe to lose money.
Algorithmic Stablecoins are The Future
This point is subjective, but it appears apparent given the current environment. The centralized stablecoins like Tether and USDC are on the way out. Regulators will likely move to ban centralized stablecoins in the coming years, especially given the suspicious circumstances of Tether.
This leaves algorithmic stablecoins as the only real stablecoin left. These projects also tend to be more trustworthy because it’s entirely trustless system. Basically, holders of an algorithmic stablecoin do not have to rely on the word of a private company like Tether Limited claiming to have enough money in reserve to back all the coins in circulation.
That’s basically centralized banking and is not a trustless system, which is something that cryptocurrency wants to move away from in time.
Who Should Invest in Luna During a Crypto Market Crash?
It takes a special type of investor to invest in cryptocurrency during a market crash. We will outline some of the characteristics of successful crypto bear market investors.
Not many people have these characteristics, which is why it can be so lucrative to invest in cryptos during a market crash.
The first criteria to invest in crypto during a sustained market crash is a long investment timeline. If you are the type of person that wants to see 500% returns in a few weeks, then don’t bother investing in crypto during a market crash.
It could be years before the crypto market recovers after a crash! You can ask anyone that invested in altcoins back in 2017 or 2018 about that.
It was a very rough few years for many crypto investors.
We recommend a timeline of 5 years at a minimum for most crypto investments. This does not apply to yield farms that require a quick entry and exit, but Luna is not that type of project. A 5 year investment timeline is suitable for Luna.
Next, anyone investing in crypto during a market crash must have a strong belief in the future of the project and cryptocurrency in general. If you are the type of person that thinks the project or crypto is a scam, then it’s a very bad idea to invest during a market crash, why?
Those that don’t believe in cryptocurrency are the first ones to sell when the price decreases. Yes, belief and a long timeline go hand in hand. You cannot have a long investment without believing in the project.
Again, the people that have made a lot of money from holding cryptocurrency had a very strong belief in the coin of the project they held. Alternatively, they may have forgotten the private keys to their wallet, but generally, those that make the most money hold the longest. And those that hold the longest have the strongest belief in the project.
Disposable Investment Money
Finally, if you want to invest in crypto during a market crash, then you should only do so with money you are willing to lose. You may as well view all money invested into cryptocurrency as money that you lit on fire.
Do not invest in cryptocurrency with your rent money or borrowed money – that is just a horrendously bad idea that either pays off or makes you homeless, which is a very big risk for not all that much reward.
More importantly, if you view the money as lost forever, then you will not be tempted to sell when the investment has lost 90% of its value over six months.
Yes, people really do sell in that situation only for the project to increase 2,000% years later like what happened with Ethereum.
That covers it for whether or not Terra is a good investment during a crypto market crash. We believe it certainly has merit as an investment that can sustain a crypto market crash. It also has long term prospects because algorithmic stablecoins will likely increase in popularity as centralized stablecoins like Tether begin to lose trust with the community.
However, whether or not you invest in it mostly comes down to your belief in the project – you do not want to invest in a project you don’t believe in as you will most likely sell it early.