The reports of crypto’s death have been greatly exaggerated.
Cryptocurrencies have had many deaths, and each time they’ve returned stronger. Back in 2014, Mt. Gox, the go-to exchange, suffered a half-billion dollar hack and promptly fell apart. Out of the ashes rose Coinbase and Kraken. The DAO hack in 2016 tricked smart contracts into giving away what would now be worth $8 billion in Ethereum. Smart contracts responded by getting smarter. As recently as 2020, cryptocurrencies lost 40% of their value as COVID rocked global financial markets.
The recent collapse of LUNA came at the hands of another attack, which took advantage of how the LUNA/UST algorithm worked, sending the stablecoin into a death spiral.
“Leverage can never make a bad investment good, but it can, and often does, make a good investment bad,” says Mark Yusko, founder of Morgan Creek. “And so that’s what we’re seeing in the past couple of months, particularly in the past week, just an unwinding of ridiculous levels of leverage. And in the case of the Terra problem from this past week, the LUNA problem, it’s just a bad idea, bad structure. You can’t collateralize an asset, that’s supposed to be stable, with an unstable asset.”
Historically, crypto collapses have been triggered by tech issues that malicious actors have exploited, with new companies innovating to solve the problem. Some industry experts see fiat-backed stablecoins as the path forward. Yassine Elmandjra of Ark Investment said, “It’s probably a very humbling realization for a lot of the institutional investors and influencers who were pounding the drum on some of the more experimental initiatives that were going on in crypto. I think the whole concept of algorithmic stable coins as being a promising project can be put to bed.”
Crypto has lost more than $1 trillion in value over the past six months. Many investors aren’t panicking, however. Prior to the LUNA and Terra crash, investors had already been de-risking in the crypto space. Tether also lost its peg briefly on Wednesday morning, dropping to $0.95 before recovering. The recovery is a good sign that the space itself has stability and will weather these storms as it has so many before.
As the crypto space begins to recover, investors can find a number of ways to gain exposure through the VanEck suite, including the VanEck Digital Transformation ETF (DAPP), which centers on the digital infrastructure that makes cryptocurrencies possible, including exchanges and miners. The VanEck Digital Assets Mining ETF (DAM) puts a greater emphasis on miners and crypto equities. The VanEck Bitcoin Strategy ETF (XBTF) offers a unique structure for a Bitcoin futures fund that utilizes a C-corp status for greater long-term tax efficiency.
For more news, information, and strategy, visit the Crypto Channel.