mm hmm. Hello and welcome. It was a crash that wiped out an estimated $400 billion off the combined crypto market and its effects are still being felt today. The collapse of the terror USd, stable coin and lunar tokens have shaken investor confidence in cryptocurrencies, many of whom have lost their life savings yet despite this, many investors believe that the market will recover stronger than ever.
I'm Jonathan. Perez from the management team here at C N A. And today we'll be looking at the five things you need to know about the crypto market crash joining me now for this podcast. Tarzan one, she's a board member from the Association of Cryptocurrency Enterprises and startups Singapore or access and Xenon Kapron, director of Fintech research and consulting firm Kapron Asia, Welcome to the show. Both of you. Thanks for having us.
Thank you. Thanks for having us.
When we talk about a crypto crash like this, the first thing of course everyone wants to know is how did this happen? But first some background unlike most stable coins which are fully backed by currency reserves, terrorist. Ust stable coin was backed by an algorithm linked to its sister token luna. And the price of that USd had soared in the last six months due to a platform called anchor Which offered a 20% yield to anyone who bought the USD and lent it to the protocol.
Now coming off that then in your opinion, what precipitated the crash of terror. You kind of pointed to it, Jonathan. First of all, crypto is very new space in general and and many of these models, both from a technical perspective and a and a functionality perspective are still being worked out. And when we look at stable coins, we obviously have the stable coins like U S D. C. Or U S D. T. That are backed by a traditional currency.
But then you have these algorithmic stable coins like terra and UST that were a new model and a new way of managing this float for a stable coin because it's early days. Obviously there are a lot of issues with this and it was really the perfect storm of conditions that precipitated this fall with a luna token going down and then Usd following. We saw the massive crash. So many people said it was predictable.
When you look at an algorithmic stable coin. The code for these stable coins is public domain and people can look at that and the models. So there are a lot of people that were predicting it. But as you pointed out as well, there were a lot of people that had invested tremendously and really believed in both the business model and the technology behind it then, were there any warning signs for investors? I mean could they have avoided this?
Yeah, on the high side, a lot of people in the crypto world did point out some witnesses like Zenon has mentioned earlier. Unlike other assets back, stable coins, Terror is an algo stable coin. Looking at the plan to defend its plaque and also in a way it is a decentralized stable coin but at the same time it's controlled
by a centralized group of people. So there are few weeks spots that people on the hindsight pointed out and said it was pretty obvious that it couldn't withstand a bear market and the deep packing will inevitably happen.
But what really kicked off the slide was first there was a sell off in terror and it seems to a lot of communities and people in crypto that it looked like a concerted effort to push down the price in terror in combination of a few things happening at the same time where the market was pretty weak there are some transfer of or creation of new pool by the lunar formation guard So it seems to be an opportunity to push down the price and terror is experimental
defense set up to maintain the pack when the price of terror start to fall and lunar the market cap in the first place was in on par to defend that and then you went into this death spiral and obviously that affected the confidence of stable coins.
And in fact that is the big surprise here right and then that this was supposed to be a stable coin. Now if this turns out it is not stable then where is crypto safe place then in your opinion people who have been in crypto for a while this kind of activity or this kind of collapse is nothing new. And when you look back to the beginning of Bitcoin, the collapse of Mount docks A couple of times where Ether was up to $1,000 and then down to $100. These ebbs and flows and cycles are nothing new to
people in the crypto space. The challenge here is obviously that there are a lot of new people that came into the ecosystem through luna and USt we've seen the reporting over the past couple of weeks where people have been really in many cases shattered. I lost a trivial amount of money with this, I played around with it and lost a bit myself, but Nothing that really hurt my life. But many people put
a significant amount of their assets into this. And on one side you have the view that this is going to go to the moon and luna get up to over $100 at one point which for people who have bought in for less than a dollar, that's a huge return. You see the bright side, you know, you see the people that have made 100 X on investing in this.
But you don't see the people that have lost money and unfortunately, you know when things go down and as zan mentioned this death spiral that we've seen, you have to be careful what you wish for because in decentralized systems. You know, you you have to have belief in the code. And as you pointed out, it seems to have been a concerted effort where somebody looked at the code, looked at the algorithm and figured out a way to exploit that.
And that's not unique. I mean there have been many cases over the past couple of months where people have looked at these smart contracts or algorithms and seen holes in the code and ways to leverage that for their own benefit. Now at this point then some critics of Kryptos have actually called for more regulatory oversight. Do you think that could actually help to prevent this from happening again? Or is that also not a good thing for Kryptos?
The immediate reaction, I mean it's reasonable to think that oh we need more regulations. We need to prevent people from over invested over participated in D5. But I think we've got to be aware that regulatory oversight is not a perfect tradeoff for risk. Yeah, because it is so new. And when you think about Decentralized entities or platform, it is almost impossible to regulate them. And I think that is probably why it takes a while, regulators.
Central banks has been talking about stable coins regulations, but nothing really solid has come in and there were lots of warning signs. Even Singapore mes first spoke about regulating crypto in 2014 and P. F. A. X. Didn't come in until 2020 things are happening so fast. In defi space regulation needs to be on point, right? Any under overregulation, What I would call like a gold displacement
in regulatory oversight. That means that you did not achieve your goal and end up impacting innovation or like a negative growth in the up and coming industry. Yeah. So I think that that is something that is not just plain and simple. It's not binary. You need to put more thought into it in regulation.
When Luna was over $100, it's very easy to say, you know, we don't need regulation, everything's going fine in crypto. But when all of a sudden you're luna is now worth fractions of a penny. That's the time that you might want regulations to be there. Because if that was a traditional financial product, in theory, the government would be there to support any kind of clean up afterwards. But right now the cleanup is being done by the same people that created the problem in the first place, which
is the luna team. And it doesn't seem like many of these people are going to get their money back when we're in a bull market, we kind of lose sight of and we say that, you know, this is great, we don't need regulators, but all of a sudden when when things start to go paris shape, that's when you wish that you had regulation in some of this and
perhaps what we are really looking for is accountability. People are saying that who is accountable for what happened. Right? Like talking to attacking the founders of terror. The accountability is it self governance. How do we even start that
the crash after it happened, impacted the rest of the crypto markets as well. With the contagion briefly spreading to other stable coins like ethereum xpr, even Bitcoin hit its lowest point since december 2020 zen. And what do you see as the impact of this crash on the wider crypto market in the longer term? We had gone through a couple of years that roughly coordinated with the quantitative easing and the market expansion that we've seen
in traditional economies that made money very cheap. And so that fueled investment in VC private equity as well as in crypto in general. So as the taps of quantitative easing started to be turned off and now we're starting to see inflation in certain places, actually quantitative tightening and higher interest rates,
that cheap money is more difficult to come by. So it's kind of a natural extension that we would have seen with the economic cycles and the traditional economy, I think that plus the terror that didn't really help the situation in crypto because you had these kind of economic forces that were limiting the amount of new money that was coming into the market.
And then all of a sudden you had this meltdown of terra many of the new people that came into the crypto space might have been burned by that and feel that this may not be the place for them. We're seeing, we're certainly seeing a bit of a more of a bear market in Crypto. But again, you know, this is nothing unusual. We, we've seen this in the past. The challenge in the past is because the, the expansion of crypto has been so tightly tied to the economic situation in traditional finance.
If the situation for the global economy doesn't open up and money becomes cheaper, we might see an extended downturn in crypto as well, which will certainly be challenging because then it's more difficult for companies to get financing to hire to grow and to experiment, which is what's needed really for the crypto industry to continue to grow in the longer term, then what do you see as the long term impacts of this crash?
I think what is significant to note is the correlation between traditional finance asset and crypto is increasing. I think Shannon would have more insight on that and I went with the bearish outlook of traditional assets. I think that has also, in a way brought down some of the pressure on crypto as well.
Long term wise again, to repeat what dan has said, this is not the first time that the crypto market have seen a downturn personally, I've been in the market since 2014 when more gods have, that was supposed to be the blacks ones, then there are more and more blessed ones along the way. Right? We know and we believe that the crypto market will or the infrastructure, the community will come back stronger, especially
what we have learned this time. And I think the past few years we experience or see a lot of retail participants in the device phase because of the high returns in terms of interest like returns. And of course the to the moon seems to be to the moon prices and it's a lesson for all of us.
Well if you're just joining us, we are talking about the five things you need to know about the crypto market crash the recent one. And so far we've talked about some of the reasons that could have precipitated the crash. We also talked about regulatory oversight and how difficult that might actually be to implement. And also we're talking about the long term impacts of the crash and the fact that this is not the first black swan event.
Now, moving on with our discussion then what do you think is the number one takeaway for investors from this particular crash? The lesson has been the lesson of crypto since the very beginning is caveat emptor buyer beware the money that you put into this space? It's very easy to forget about the losses from MT GOx or the I. C. O. S from a couple of years ago or indeed terror. You know we as humans have very short memories and we often have this cognitive bias to seeing the upside
and not much of the downside. And so I think for the average individual, maybe it's useful to have a little bit of money in new crypto but you know only invest what you can afford to lose because as many people have found out it can go to zero or close enough that it becomes statistically irrelevant how close to zero it is. It's it's fundamentally worthless and we've seen that
in this space. So it's just very important that although there are heavy returns from some of these coins or some of these assets, it all needs to be taken with a risk attitude appropriate for the individuals. I think what will be interesting to see is what happens on the institutional side. Some institutional investors have been heavy into terra and luna and lost out as well. But it'll be interesting to see what happens to their appetite as well.
You know, many of them are more in the kind of traditional kryptos like Bitcoin and ethereum. But certainly many had exposure to some of these newer ones as well. So what they do over the next six months will be really indicative and telling of what to expect as we look forward, then what's your chief takeaway from this event.
I seem to be saying the same thing after all, the downturn is really again, diversification. I came from the traditional finance background. I used to think that if you know what you're doing, you don't diversify. Sometimes people say that you know there are three staker who say that right? No, I think not the case when you are new to the market first thing learn as much as you can. I have people who bought luna and could not explain to me the minting and burning mechanism.
I think that's wrong. You know, if you're going to buy something at least know the basic at least the very least and know who is the LFG lunar polishing part which was just set up in Singapore in january. The learning part of being educated part is really important. What is level one tokens, what is level two protocol
and stuff like that. And the other thing is not just purely looking at what's happening in the crypto market because the correlation is increased I think with the traditional finance side. So I think I might have to look at some of the macro that caught up with what is happening
around the world. Non crypto wife, I am still bullish of the whole industry being the fact that crypto I believe is going to be the key pillars of web 3.0, we're talking about medals which is still in the early stages, it has to be and it will be one of the key pillars,
Crypto is not going away anytime soon. Even Terror Ceo da Quan doesn't seem to be going away either. He's still trying to revive the Blockchain? But where should investors go from here? Those and like what is your advice stick to the big ones or should they also experiment
again? I think don't invest in anything. You don't know. That's one, even though people say, you know you should invest, maybe you should buy some level two protocol tokens, but if you don't know anything about it on it first and get involved. The community, the community is open. There are a lot of discussion online on discord on telegram. So these are also breeding ground of scams. I have to say that especially I think with the recent outright
banned of advertisement, right? And also regulatory move all over the world, it could have created pockets of opportunity for scammers to reach out to genuine bias, right? And genuine learners of crypto. So I think besides knowing what to buy, where to put your tokens or where to put your fiat money is important to recognize what is a scam. Yeah, there are people who thought they bought Bitcoin. They said I'm safe. I bought Bitcoin or I bought ethereum. They
actually downloaded a scam wallet and lost it all. So that's one thing that we must be mindful of as well.
So zen and some critics have actually said that retail investors shouldn't get involved in crypto because the hedge fund guys are the ones holding all the power. Do you agree with this and how can retail investors actually protect themselves in this market?
It's a very challenging question because when you look at traditional markets, you limit certain asset classes to accredited investors or basically individuals that have a certain level of income or investable assets to be able to participate in I. P. O. S. And private equity or some of the more riskier high risk but potentially high reward asset classes.
And the challenge with crypto is that it is very high risk, it is very high reward, but there's no gateway and no gate that controls who comes in and out of the market. So you could argue that is good because and that's what many of the people within the industry think is that you have this asset class that's open to everybody and everybody can participate but everybody can also lose in these cases as well.
And that's really the challenge for the industry is and and for the regulators as hole is where to draw that line. I mean, here in Singapore, we've seen regulators pushback against crypto advertising, presumably the idea of not bringing as many retail investors into the market. The question is,
should retail have access to this market in general? And that's a difficult question to answer because you really have the spectrum of people as dan pointed out that have some idea that I have no idea that have a complete understanding of what some of these coins and protocols look like and others that are completely flying blind and so that's really the challenge in that and where you draw the line for this.
Can I just add one more thing when we look at the victims, what I call of luna this time around. I think the worst heat were the group of people who took leverage to buy the crypto. So I think there is one place that please do not ever go there unless you're super sophisticated or you have some hedging solution in place but do not leverage to buy crypto,
zen and zen. Thank you so much for joining me in this podcast. Thank you. Thank you. So to recap not all stable coins are the same. Those not backed by hard currency can be manipulated. More oversight is needed but it is not easy to regulate Kryptos. Kryptos are not immune to the wider global economic conditions, diversification and education is key. You must know what you are investing in and those are the five things you need to know
about the recent crypto market crash. Thanks for listening. Money. Mind airs every saturday at 10 30 PM on media cops C. N. A. You can also catch us online at CNN dot asia or on Youtube. Mhm. Mhm