One Button Capital's report for May 2022 is live.
Research

How Did AI Respond To The Terra (LUNA) Meltdown?

Download Report

When Terra’s ecosystem, which included its native coin LUNA and algorithmic stablecoin TerraUSD (UST) went down it sent shockwaves through the whole market.

Thank you for signing up for our newsletter!
You have already signed up for our newsletter.
Research
One Button Capital
June 10, 2022
Jun 10

When Terra’s ecosystem, which included its native coin LUNA and algorithmic stablecoin TerraUSD (UST), went down, it sent shockwaves through the blockchain and cryptocurrency world as a whole.

Not only did the value of terra-ecosystem tokens like Anchor’s ANC drop, but widespread fear, uncertainty, and doubt also sent the market-leading cryptocurrencies Bitcoin (BTC) and Ether (ETH) below $27,000 and $1,800, respectively, on some exchanges.

“Luna will hit $1 before UST” was one of the most shared tweets.

A huge blow to industry confidence

The collapse of the LUNA and UST crypto-currencies wiped out a lot of people’s fortunes. Not only hedge funds didn’t know about the risks of staking algo-stablecoins, but so did regular users. Some even lost their life savings.

The depegging of UST. Source OKX

Regulators took the bait.

The collapse of the Terra coin is fuel for crypto critics in Congress. The lack of regulations, user protections, and risk-mitigation systems is cited as part of the reason behind its collapse.

Senator Elizabeth Warren has said that “shadowy super coders” and criminals are in charge of decentralized finance and cryptocurrencies. Together with Senator Tina Smith, the lawmaker wrote that investing in cryptocurrencies is risky and speculative.

AI Trading Bots’ Response To LUNA

On May 7, 2022, LUNA started its descent from $80 per token to oblivion. On May 11, it reached $1, and the next day it was $0.01, which disappointed all the project investors.

One Button Capital traded LUNA market pairs at the time, and a few strategies were still in use during the bleeding period. How did they react?

The first market reaction we observed was by the Performer v2 strategy trading on the LUNA: BUSD pair. On May 9, 20:05, the robot sold its LUNA position completely at $59.30. On May 10, just after 17 hours, the price of LUNA was already at $29.65, saving the investor from a -50% loss.

A trading bot that traded a LUNA pair for over four months. Source: OBC app.

The second notable account of LUNA trading is held by the Clipper AI strategy, quitting the position on May 8 at $65.93 per LUNA and riding it all the way down to $3.90 and not trading ever since.

Trade history of one of the AI bots that fell under the LUNA apocalypse. Source OBC app.

Another interesting situation happened to the strategies that traded LUNA until it reached its lows on May 14. One of the Performer v2 bots entered a position at around $0.0001, buying more than 600,000 LUNA. On the same day, the price of LUNA went up by more than +200%, giving the user an incredible ROI and offsetting previous losses.

Screenshot of daily strategy return vs LUNA return during May 14 — May 15, 2022. Source: OBC app

Another example shared by one of our community members, Noidea, revolves around the trailing stop-loss feature available on the OBC app. On May 7, the “emergency brake” was triggered on the LUNA: USDT market pair — all the LUNA was sold at $75 and the strategy was deactivated. We all know what happened after that.

Here is the feedback by Noidea himself:

It’s important to keep in mind that manual stop-loss and automatic trailing stop-loss are both important risk management tools that can be used with the OBC app’s premium features. Those can be extremely useful instruments during times like these and save investors from “black swan”-type outlier events like what happened with LUNA.

Another feedback from one of the users about the stop-loss feature.

Can (Un)stable Coins Crash The Market?

In light of the UST debacle, investors may be wondering how successful stablecoins will be in their role of providing liquidity to the crypto market.

Experts’ opinions

The UST crash has caused investors to question their trust in the stablecoin structure. The way other stablecoins work will also be called into question, Chis Skinner, a fintech expert, says. Investors should do their research and make sure they understand the risk and exposure involved, he adds.

The good things from the situation:

The UST crash could boost other stablecoins like USDC and USDT. Adil Abdulali, head of portfolio management at Securitize Capital, says it will allow other stablecoins and algorithmic experiments.

Abdulali compares stablecoin competition to “survival of the fittest,” with enduring projects growing stronger. “It’s a competitive space that innovates,” he says. Markets move quickly, and failing projects are abandoned.

“When the community loses confidence and there’s a run on the currency, everyone taking their money out pulls the rug on the marketplace,” Skinner says.

Concerns about retail investors

Investors must treat stablecoins like any other investment. Even if a person is confident that he will not lose his investment, there is always a risk. While stablecoins are a great way to keep your free capital when markets are not favorable, it is still better not to put all of your eggs in one basket.

Summary

LUNA and UST meltdowns have been terrifying experiences for all the people invested in the project. This event highlighted the importance of risk management and portfolio diversification when investing in cryptocurrencies. When within 24 hours the value of your portfolio can go down by -99%, you never want to leave yourself unprotected.

By at least using automated trading tools and stop-losses, investors can already insure that their accounts will not vanish.

One Button Capital’s automated trading strategies handled the LUNA crash to a moderate extent, with some of the strategies selling off before the crash or exiting positions completely due to (trailing) stop-loss.

It is also worth noting that the OBC AI strategies don’t do fundamental analysis and trade purely on market data. So the fact that the strategies exited the market completely based exclusively on technical data makes it even more fascinating.

Download Report

More Posts:

We regularly prepare insightful reports and case studies about crypto trading and the blockchain industry.

Sign up for our newsletter

<
Back
Request access for One Button Capital
Please, enter a correct email
ReQuest Access
image
You have successfully signed up for OB Trader!

We sent you a link to complete your sign-up.
Check your inbox, verify your email, and unlock all functionalities of your OB Trader account.

Join our communities!
You have requested access for OB Trader!

You have requested access for One Button Capital!

You were added to our waitlist. You will get an email within 3-5 days If you are shortlisted.

Follow us
Oops! Something went wrong. Please, try again.
Oops! Something went wrong while submitting the form.

Specify the desired investment size

Icon
Less than
100,000 USD
check icon
Icon
More than
100,000 USD
check icon
Already have an account? Log in.
<
Back

One Button Capital investment inquiry

Submit your inquiry through this form
Thank you! Your submission has been received and the team will get back to you within 1-3 business days.
Oops! Something went wrong while submitting the form.