Luna investors’ wealth wiped out: What cryptocurrency investors should do

The brutal carnage on the crypto market has wiped out nearly $400 billion (Rs.30 lakh crore) of investor wealth in the past two weeks. Top 20 names, including stable coins like Bitcoin and Ethereum which are considered bluechip, have dropped by more than 50% from their 52-week highs. Bitcoin fell briefly to Rs.22.35 lakh before recovering, whereas Ethereum fell to Rs.1.53 lakh.

The fall in smaller tokens is steeper and the pain more severe. The biggest shocker has been Luna, which has seen its value drop from Rs.6,000-7,000 a few months ago to virtually zero on 13 May. Luna’s problems are rooted in the fall of its sister coin Terra. The algorithmic stable coin is supposed to maintain a one-to-one peg against the US dollar but slumped nearly to $0.26 to the dollar on Wednesday night after the complex mechanisms that are supposed to hold the dollar peg failed leading to the UST crash.

And as a result Luna, Terra’s sister token which powers the Terra blockchain, dropped from $80 to below $0.30 on Thursday. A good number of Indian crypto investors were holding Luna in their portfolios. The meltdown wiped out their holdings in a matter of hours. Luna had seen a meteoric rise last year, rising from Rs.400 levels to over Rs.9,000 before settling down to Rs.6,000-7,000. Now its value is virtually zero as many crypto exchanges have delisted the coin.

“The whole portfolio is down by 60 %. Though it is tempting, I do not have the conviction or the funds to purchase more. I am seriously contemplating exiting crypto now if I get an out, “said Gopala Somani, a Delhi-based trader.

For many financial experts, the crypto meltdown is the “I told you so” moment they have waited for almost three years now. They are now gloating over the steep fall in crypto prices. “Let this Luna crash be a lesson. Most cryptos will meet the same fate sooner or later. Cryptocurrency is just a fad to suck out the money from people who became rich recently in developing nations,” tweeted Sadaf Sayeed, CEO of Microfin. On its part, the crypto industry is putting up a brave front.

“The significant dip is a global phenomenon and is primarily due to developments in the macro-environment such as increasing inflation, raising of interest rates by the US Federal Reserve and the Russia-Ukraine war,” says Nischal Shetty, Cofounder and CEO at WazirX. “In India, we have witnessed a sentiment of buying the dip since April, which shows that there is still investor confidence in the market even at present levels,” he adds.

Like him, many crypto evangelists are hoping that this storm will quickly pass. “The sentiment is down, just like it was in 2017 when cryptos were banned in India,” says Amit Nayak, Co-founder and CEO of SahiCoin, a platform that seeks to spread awareness about crypto investing.

The environment soured for crypto investors in India after the new tax rules introduced in this year’s budget. There is a flat 30% tax on all gains, irrespective of the income level of the investor. Even investors with no income have to pay 30% tax on gains from crypto trading. Worse, losses from one crypto can’t be adjusted against gains from another. There is also a 1% TDS on sale transactions.

Though we had no idea what was in store, ET Wealth had advised readers to book profits (or losses) on their cryptos before 31 March to avoid the stiff tax rules that would come into force in the new financial year. Tax experts had said that the tax rules were framed to discourage investments in cryptos. “It’s a continued effort to isolate and disincentivize crypto currency related activities in India,” said Rohinton Sidhwa, Partner, Deloitte India. In retrospect, in trying to push investors away from cryptos, the budget was saving them from the crash in May.

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