A stablecoin is, in theory, just that – stable. It’s a crypto coin that is directly tied to a country’s unit of money on a one-to-one ratio. Terra’s stablecoin was equal to exactly one U.S. dollar before it tanked. Terra’s stablecoin was also tied to Luna – instead of being backed by a reserve of fiat money, stablecoins were produced out of coin mines, and Luna was backed by the stablecoin. Double-layering coins like this would, in theory, prevent wild fluctuations. It’s meant to serve as an anchor to the ‘real’ investment.
However. Being equal to a dollar does not mean it was backed by a dollar. If the stablecoin fails, then so does the real coin, and the stablecoin can fail for a number of reasons. In Terra’s case, it was a lack of liquidity.
Terra has had to dig itself out of holes before, but it never lead to the stablecoin failing. One time, they magicked a bunch of coins into existence to lower the rising price of the coin and reestablish stability; another, they absorbed a bunch of investor money to buy coins back and keep it from tanking. Terra had been fighting an uphill battle for a while now, but because it labeled itself as stable and kept afloat, investors and coin purchasers had no idea what the situation was, and that alone kept it up. Of course, if Terra had been honest, the market would have tanked sooner due to a loss of faith and a run to sell before it was worthless, so once they were underwater on their investment trying to buy up coins and keep the price stable, the end had already begun, and Terra tanked. As one of the oldest, stablest coins on the market, crypto forums began to panic.
The BitCoin Drop
Bitcoin has a history of soaring highs and trench-like lows. Famously, someone on the web sent 30 Bitcoins to pay a delivery driver for a pizza worth approx. 8$ some time in the 2010s. In 2010 proper, a Bitcoin was worth just 8 cents. When it skyrocketed to a whopping 250$ from 10$ in 2013, people who’d bought some couldn’t believe it. Many sold; many bought. The price continued to rise, going from 450ish to 900ish across 2015 to 2016, and then from 1,000ish to 18,000ish in 2017 thanks to media attention and a growing awareness of the product. Of course, this high lead to a low as people sold and didn’t rebuy, and Bitcoin hit a low of 3,000ish in 2019 before going up, down, and up again across a handful of months before briefly stabilizing. Most recently, in the 2020’s, Bitcoin’s chart has looked less like a mountain range and more like a seismograph, with it’s value doubling, halving, doubling again, and then halving again across just months. As it stands now, in May of 2022, Bitcoin’s dip to less than half of it’s most recent high (now at approx. $29,000) means that companies who invested in it and who took it as payment have had a significant portion of their gains wiped. Tesla lost half it’s theoretical gains for the year in a few days purely by Bitcoin’s fall.
Along the way, other cryptocurrencies saw the potential in cryptocurrency, and started creating their own coins. The problem is that cryptocurrencies, which aren’t backed with much of anything at all, are prone to these extreme fluctuations by nature. One big investor selling a little too much at one time can completely wreck the coin’s value by creating a run on the coin. New entrants to the market are also notoriously prone to pump and dump schemes, further encouraging investors to sell at 10% down instead of waiting for it to recover.
All this to say that the big coins, Terra Luna, Bitcoin, Ethereum, and a few others were the most reliable, and if they’re tanking, everything else is tanking with them. Additionally, most people want the number to stop falling, or at least slow down, before they buy. Ironically, this makes reversal take longer: the more supply as people sell, the less demand there is to go around as people try to wait it out. If the coin isn’t well-known, today’s market won’t rebuy – people are sick of pump-n-dump schemes. The coin never goes back up. Bitcoin and Terra are well-known, but every dip is heartstopping because the gaps between spikes are getting bigger and bigger. Buying during the dip might mean spending 2,000$ on something that drops to 500$, and then doesn’t rise again for a year or more as was the case in 2018. Why buy something that has no brakes and continues to fall?
Bitcoin is not a canary in the coal mine – when things get to Bitcoin’s size, they become miners themselves. Doge, on the other hand, was a joke coin that turned serious when it’s value spiked and then became a sort of bitter aftertaste to a joke when the price dropped again. A well-loved canary choked to death by the mine operator that is crypto markets. Logically speaking, not every coin can go to the moon. People were seeing something in Doge that simply wasn’t there. Some investors treated it like a pump-n-dump with an uncooperative creator (who was generally not interested in being a public face for his coin and also didn’t want to defraud anybody, because he made the coin as a joke) others treated it as a hidden gem that could quintuple their worth after it spiked suddenly from less than a cent each to 63 cents over the course of a day or two. 20 doge coins worth a total of 16 cents were now worth 12.60$. for anyone who’d dropped 20$ on Dogecoin as a joke, that was a huge jump.
This ruined the doge coin community. At first, there was some idea that this would work out, they’d all have a good time with it and hold so it didn’t result in the death of the coin like it did for so many others, and then Elon Musk commented on it, and the coin blew, deflated to 30 cents, and then 20, 15, 10, and now down to 8 cents. While that’s still 16x more than the coin was worth at the start, it’s not the epic peak devoted Doge fans believed they’d earn if they just held on in the face of an unforgiving crypto market.
Doge is not a victim of the Bitcoin crash because it already crashed- it was a harbinger of what would happen to Bitcoin if things continued as they were. Continue they did, and Bitcoin’s Doge-crash happened on a longer timeline. Will it bounce back? Will any of them? Nobody can say for sure. Terra, though, may never re-earn the trust it once had even if it does recover.