The average public doesn’t really comprehend cryptocurrency in its depth, but they know it is notorious for its volatility. Because of this volatility, people have this conception that investing in cryptocurrencies can be risky. Check out this link: chesworkshop.org
The history of cryptocurrencies has also served as fuel for the fire in this situation. A relative percentage of people have left the cryptocurrency sector as a result of the numerous occurrences that are viewed negatively throughout the industry’s history.
Looking back at Terra and Luna’s crash which was nothing but a disaster in the blockchain market. The reason behind this scenario was the design of the algorithm, which allowed users to exchange 1 Terra coin with 1 USD worth of Luna. The cryptocurrency Terra was already on the verge of collapse as it was unable to reach a value of 1 USD and was valued at 0.3 USD.
Its principle was to compromise the Terra coin to surge its values. To back it up, the miners produced Trillions of Luna coins. The oversupply without any market acceptance resulted in the Luna coin’s collapse. In less than a week, many Terra and Luna coins disappeared from the market, valued at Billions of dollars.
Hedge Funds and its Effect on Blockchain Securities
Hedge funds are a set of strategies that offer investors financial incentives and holdings over a longer span. It relies mainly on the Short Sell technique, where an investor sells a stock or shares at higher prices and buys them later at a lower price. It is the most promising working technique for hedge funding.
In the blockchain world, Hedge funds are service providers who facilitate investors with little to no understanding of blockchain market trends. The short-selling technique is also valid for cryptocurrencies. The method is simple: buy at a lower price and sell at a higher price. The only difference is the reverse sequence, as you are selling first.
The blockchain market trends are a boat ride in the middle of a storm as the market is volatile. Projecting short selling is just like a gamble, as the values for cryptocurrencies are uncertain.
It affected the Terra and Luna market as lots of coins were in the market, but no buying transaction resulted in the crash of Terra-Luna coins. Similar is being seen in the trends of the Tether coin.
Is Tether following the fate of the Terra-Luna meltdown?
Following the meltdown of Terra and Luna coins, it is clear that short-selling cryptocurrencies will respond abruptly to a currency leading to an end. Numerous hedge funds are shorting the Tether, which may result in Tether losing value over time and, eventually, ending up as a total loss.
Although it is evident that the Terra-Luna disaster was a preplanned game, will it apply to Tether? The answer is No. It is because the Terra and Luna coins were algorithms based. The Tether is not an algorithm-based coin and is backed by tangible assets.
It is evident in the history of Tether, its survival through the worst-case scenarios. There has been frequent auditing for the verification of real assets backing the value of Tether. There was an accusation on Tether regarding the false valuation of supporting assets shown to the public by the
Federal office, which was settled. However, Tether didn’t mention any dent in its image.
Conclusion
The Terra-Luna fiasco resulted from combined strategies that included algorithm backing and the hedge funds’ massive short-selling. It is clear as water that short selling in cryptocurrencies is quite a risk to go for. The hedge funds with bad intentions use it as a recipe for crashing a cryptocurrency.
Tether is a coin backed by tangible assets. It has sorted out all the concerns regarding its backing structure in the past and has proven to be quite successful. Therefore, there is less chance that Tether will follow the same fate as Terra and Luna coins.
If you are planning to invest your money in Tether, make sure you have done your research and consulted people who are already trading on platforms like the Bitcoin Trading Platform and others. Having better knowledge will guide you to make better decisions and make profits.
