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After LUNA’s collapse 43% investors are too scared to pour more money in crypto — research

Tanja Nechet

News editor

13.10.2022 at 07:17

The survey, conducted by consumer insights provider Toluna, shows that cryptocurrency is the second most well-known form of investment today (57%), although still not very common among the majority of the population. Despite high awareness, 60% of respondents said they did not understand cryptocurrency. Stocks are still in the first place (64%). Bonds (51%), fixed deposits (50%), and mutual funds/exchange-traded funds (39%) rank third, fourth and fifth, respectively. By awareness, they rank as follows: commodities (35%), futures (26%), collectibles (22%), unit trust (25%), annuities (23%), crypto derivatives (27%), hedge funds (22%), options (20%) and derivatives (16%).

Cryptocurrency remains one of the most famous investments. Image: Toluna

Many still see cryptocurrency as too risky (46%), volatile (30%), or unsecured (27%) to invest in. 

The report is based on an analysis of 4 regions, 19 markets (countries were divided according to the criteria of emerging and developed markets), and a survey of 10,500 respondents between December 2021 and June 2022.

Developed markets still lag behind emerging markets in awareness and understanding of cryptocurrencies. Image: Toluna

Four regions include:

  • NA — North America (USA);
  • LATAM (Brazil);
  • EMEA (Germany, Spain, France, Italy, United Kingdom, United Arab Emirates (UAE), Saudi Arabia);
  • APAC (Thailand, Philippines, Malaysia, Vietnam, Indonesia, India, Hong Kong, Australia, Singapore, China).

The emerging markets include such countries:

Brazil, India, Philippines, Indonesia, Thailand, Malaysia, and Vietnam.

And developed countries are:

Singapore, Hong Kong, China, Australia, Germany, Spain, France, Italy, the United Kingdom, United Arab Emirates, Saudi Arabia, and the United States.

Emerging Asian-Pacific (APAC) and Latin America (LATAM) markets show the greatest appetite for cryptocurrencies. Residents of these countries are most likely to:

  • invest in cryptocurrencies (emerging markets: 24% vs. developed markets: 13%); 
  • trust cryptocurrencies more (emerging markets: 5.5/10 vs. developed markets: 3.5/10);
  •  consider cryptocurrencies safe (emerging markets: 4.5/10 vs. developed markets: 3.2/10).  

“In mid-2022, much remains unchanged. Many still don’t understand the crypto market well enough, and many still deem it too risky, volatile, or unsecured… Unsureness about crypto is universal, but developed markets tend to be more skeptical while emerging markets are more curious, optimistic, and excited… Current investors and intenders are still mainly attracted by the potential high returns, and it’s still viewed as worth the risk for those looking to diversify their overall investment portfolio,” the study says.  

LUNA collapse vs. Optimists  

After the news about the collapse of LUNA/UST, 42% of people reduced their investments in cryptocurrencies, but the rest remained unperturbed (58%). 

Blockchain network Terra and its leader Do Kwon, made a name for themselves in the cryptocurrency world in just four years. But the incredible success story ended in a grandiose collapse. 

On May 7, the price of the $18 billion TerraUSD (UST) algorithmic stablecoin, which is supposed to maintain a peg to $1, began to fluctuate due to capital outflows. And during May 11–12, the cryptocurrency LUNA collapsed, wiping out $60 billion and shaking up the global digital currency market. In mid-May 2022, Terra (LUNA) crypto token crashed from $120 to $0.02 — up 99.9%.

The TerraUSD (UST) stablecoin and the LUNA coin are two related tokens in the same Terra blockchain network. 

Terraform Labs created the UST coin as an algorithmic stablecoin on the Terra network. Its value was backed not by real assets but by the related token LUNA. In this bundle, LUNA had to be burned to “mint” UST to stabilize it whenever it lost its 1:1 peg to the dollar and vice versa.

A large organization borrowed 100,000 bitcoins from the Gemini exchange. They then exchanged most of those BTC for over-the-counter (OTC) UST from Do Kwon at a discount. This lowered the liquidity of the UST.

The same “big organization” then allegedly dumped large amounts of BTC and UST into the market, causing a cascade of long position liquidations with leveraged slippage. This led to panic selling among investors as they sold their LUNA and UST.

The sentiment is still optimistic because the influx of potential cryptocurrency investors, especially in the emerging markets of APAC and LATAM, has remained steady since December 1, 2021. Among current investors, 43% are still planning to put more of their assets into cryptocurrency over the next six months. This is seen in both emerging and developed markets, but the trend is higher in the former. 

The number of potential investors looking to enter cryptocurrencies in the next six months, in both emerging and developed markets, by county:

  • Thailand, 37%  
  • Indonesia, 35%  
  • India, 35%  
  • The Philippines, 32%  
  • Brazil, 22%  
  • The UAE, 37%  
  • Saudi Arabia, 25%  
  • Brazil, 22% 

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