Fiat Actually Collapsed
The $20 Billion Luna ecosystem and its coin UST, whose value should be 'fixed' to $1, exploded. Cryptocurrency has experienced huge declines. These events will take their place in the history of cryptoassets as 'Black Thursday'. Finally, today Luna has been traded on major exchanges.
The enemies of Bitcoin and cryptocurrencies, who took advantage of the situation, immediately started negative propaganda. What the heck, this is crypto. Decentralization was bad or a lie. Bitcoin is not a cure for inflation. Cryptos are down.
Behind this opportunistic propaganda, bureaucrats and bankers are at the top; Below them are the classical economists and members of the central media. In fact, if you know what Luna really is, you'll understand how empty the fuss is.
Luna's stablecoin UST was ranked 3rd after the other largest stablecoins USDT and USDC. These etc fixed cryptoassets are actually systems based on central trust that do classical central banking on the blockchain. In other words, it is the opposite of decentralized Bitcoin.
Classical Central Banks produce reserve money in two models:
1-In the first model, the central bank keeps various assets, especially gold, in its portfolio and produces and puts into the system only the reserve money equal to the value of these assets. This is how all central banks of the world worked before 1914. The more gold they had in their vault, the more reserve currency they could produce. Today, USDT and USDC work in this model in the crypto world. Of course, crypto central banks based on this asset hold more dollars.
2- In the second model, the central bank produces currency only in return for debt, without any underlying assets. This is the model that the USA started to implement after the US broke the bond of gold with the dollar in 1971. In this model, the US Treasury issues Debt Securities (bonds). The central bank gives it to the Fed. The Fed generates the $ (USD) we know in exchange. The more the USD is used, the lower the interest rates, and the bonds constantly gain value. In order to guarantee the use of USD, the USA has stipulated the use of $ in oil trading in the world. Today, all central banks also use this model.
Here, the Luna ecosystem brought a copy of this model to the crypto world. Luna was a free, unlimited currency with nothing behind it. It was almost like Luna was a kind of bond. 1 UST could always be exchanged for $1 Luna and vice versa. So in exchange for Luna, which acts like bonds, UST, which imitates the USD, was in circulation. The more USTs in circulation, the higher the value of Luna. Just as the value of US treasury bills increases as the USD is used up. Of course, the Luna ecosystem also created a usage area for its own IHR, just like the USA's requirement that "oil trade will be made in USD". UST holders were given 20% annual interest. Considering that the USD interest rate has only recently been increased to 0.75% in classical markets, and it has been in the 0-0.25% band for many years, this was a tremendously high rate.
Thus, the continuous demand for UST increased and Luna became valuable. At one time, Luna's market cap exceeded $40 billion. However, the embargoes placed on Russia in the classical markets gradually put some funds that trade in commodities into a very difficult situation. Selling pressure increased in the classical markets after the war. Commodity traders are also very interested in Bitcoin, which is seen as a digital commodity. Thus, sales in cryptoassets also increased.
As UST Sales accelerated and the 20% return became unaffordable, Luna executives decided to return to Model 1 this time around. They tried to buy cryptocurrencies and Bitcoin etc. assets they created out of nothing, and to create a reserve for the USTs they issued.
However, after the Fed's decisions on May 4, the funds, which had difficulties in the classical markets, went into shock. They started selling whatever stocks they had, tech stocks, bonds and crypto everything to meet obligations elsewhere. The great slump began when this selling wave hit the already fragile UST. Panic selling ensued when the value of UST failed to hold $1. As USTs were sold, more and more Lunas were released, and the value of 1 Luna circulating at $100 eventually fell to zero…
As you can see, it is an unlimited semi-centralized coin generation model that crashes in Luna. However, the Bitcoin model is completely decentralized. Luna had a manager: Do Kwon. There is no center or manager in Bitcoin. Luna and UST are assets that can be produced without cost and unlimited, just like US Bonds and USD. However, the electricity cost of producing a Bitcoin today varies between $ 20-25 thousand. And of course, unlike USD and UST, Bitcoin is a limited currency.
Let's warn the enemies of cryptocurrencies, who are happy that Luna has crashed today: Similar to the collapse of Luna, the USA and the Fed may be in trouble in the coming years! How Does?
Luna didn't have a real business model to make her so valuable. The USA also has huge budget and foreign trade deficits today. In other words, the USA is not a net producer country. Take out the strength of the dollar, some of its economic values are even worse than Turkey. For example, the Government Debt/One-year production (GNP) ratio is 42% in Turkey and 137% in the USA. Moreover, just like exiting the UST on Luna, the world is abandoning the USD as a tool to hold reserves. According to IMF data, the share of the dollar in the foreign exchange reserves of the world central banks was 71% in 1999, while this rate decreased to 59% in 2021.
In addition, oil trade with $, which is the usage area of the USD, is gradually decreasing. Saddam and Gaddafi who tried to break this rule before were severely punished. However, today Russia has started to sell its oil and natural gas in rubles despite the embargoes. In 2018, China issued Yuan-denominated oil futures contracts as a competitor to the USD and guaranteed the Yuan's gold equivalent. Russia tried to return to the gold standard for a week. China is negotiating oil trade in Yuan with Saudi Arabia. Despite US threats, the Saudis did not give up on these talks.
In the last 14 years, the USA produced 8 times the 1 trillion USD reserve money it produced in 200 years until 2008. Now the US and world markets have become addicted to this reserve currency, which is constantly produced unlimitedly. With each new recession or crisis, more reserve USD has to be produced than before. Real inflation in the USA is in the 16-17% band. If the Fed tightens too much to keep inflation down, US and world markets will collapse. After a while, it will start to produce reserve USD again. As real production declines in the market, the constant emergence of more USD and other unlimited reserve coins may accelerate sales of USD at some point in history, as Lunaists eventually start selling UST. Thus, the USA, whose deficits increase even more, starts to produce excessive bonds. Just like when UST is sold, billions and then trillions of Lunas are produced. Thus, the value of U.S. treasury bonds plummets, and ultimately the $700 trillion global bond market collapses with the derivatives. Whatever the collapse of Luna did to crypto, the bursting of the bond bubble will do the world's economies a thousand worse.
Who do you think would survive in such a scenario? Natural and digital fully decentralized limited coins of course. Namely: Gold, Silver and Bitcoin…
And look what the legendary investor Bill Miller, who managed to get more returns from SP500 every year in a row between 1999-2005 and bought Bitcoin since the 200-300 $ band, said exactly what he said today:
“I hold Bitcoin as insurance against financial disaster”