Last May 2022, investors witnessed a huge crash in the crypto market. LUNA, the popular native token of Terra, literally crashed from 3-digit price down to getting lots of zero right after the decimal in a short time.
With that, LUNA token holders who had been riding on the bull market finally felt fear, uncertainty, and doubt (FUD). So what are the lessons they should learn from this experience?
Lesson #1: Always use exchanges with sufficient liquidity
In a market where the price of a coin can dramatically inflate or disappear, it is important to have a stable coin that can maintain its value. LUNA was designed to do that by enabling transactions on blockchain with low fees and instantaneous transactions. This made it very suitable for trading purposes and as such, many investors started accumulating LUNA tokens in order to buy as many Terra as possible.
This may sound like a good strategy and LUNA is indeed a good choice for investment, but it brings some risks too. When one day the price of LUNA suddenly drops, new and inexperienced investors are likely to panic and sell in order to avoid further losses. This will trigger the panic selling from other investors followed by an overall drop in price.
To avoid such a situation, always use exchanges with sufficient liquidity when trading.
Lesson #2: Be aware of the volatility of crypto
Again, LUNA is a good investment. However, do not think LUNA will never crash. The value can still go down despite being a stable coin because LUNA is still a cryptocurrency in its nature. It is easy to trigger panic selling when the price drops slightly. That’s why you have to be careful during the market fluctuation.
Lesson #3: TIPS should still be followed!
Still, on the trading advice, we have noticed this time that many LUNA holders were afraid of losing their money in the crash and tried to sell their LUNA holdings immediately then. However, they do not know how a crash like this one happened and how it can happen again. So here are some TIPS which could help you make sense of the crash.
First and foremost, crypto can crash for all kinds of reasons. LUNA only crashed because of the bearish market that started during the Ukraine-Russia conflict. But there are many possible causes such as regulations, exchanges’ failure to meet KYC/AML requirements, scam activity, and more. When you have invested in a token with a high price, it is important to be aware that the value can still drop if any of those reasons happen to a token or coin.
Secondly, a crash in the market does not consist of just a single event but can be a series of small events that can happen in one day. It is possible for the price to plummet by 10 percent within a short period of time. This is called a “flash crash” and is similar to the situation during 2017 when the BTC prices went down drastically and then shot up quickly.
Lastly, the market is still new to most people. This means that investors are not very experienced in the entire process and are likely to panic and sell in times of uncertainty.
LUNA token holders may feel unhappy at their losses. However, do not be too negative about it and make sure you learn valuable lessons that can help you navigate the market successfully in the future.