Both tokens are affiliated with Terra, a blockchain platform co-founded by Korean developer Do Kwon and, according to blockchain analytics firm Elliptic, investors in those tokens have lost about $42 billion.
Luna was one of the most popular cryptocurrencies in the world and its fall, along with that of TerraUSD, caused chaos in the cryptocurrency world, with bitcoin losing about a quarter of its value between May 9 and 12.
Worth nearly $100 at the end of April, Luna is now trading at a fraction of a penny – so low that there has been a buy rush from speculators betting on a miraculous turnaround, with some clinging to the belief that it is simply too big to be abandoned.
“Luna was once a major piece of the top 10 market capitalization, so they will do whatever it takes to revive it,” one hopeful investor wrote in a blog on South Korea’s Internet platform Naver, without saying who “they” could be.
The blogger said he bought 300,000 Luna over the weekend at 0.33 won ($0.0003) each, using an international cryptocurrency exchange.
With the sudden resurgence of buying having crossed its radar, South Korea’s Financial Services Commission on Tuesday warned people against investing in Luna.
The number of investors in the bankrupt cryptocurrency rose by more than 50% in just over two days on South Korea’s major exchanges to 280,000 as of May 15, according to an FSC source who, as is customary for South Korean bureaucrats, declined to be named.
The purchases come mainly from domestic speculators, although there have been some inflows from abroad, according to the source.
The window for speculation is limited as Bithumb and Upbit, two of South Korea’s largest exchanges, have said they will suspend trading support for Luna on May 27 and May 20, respectively, while another exchange, Coinone, has stopped deposits in the cryptocurrency in anticipation of possible delisting on May 25.
The purchases had little effect on the price of the token. He spent last week oscillating between one hundredth and four hundredths of a hundred.
But the propensity of South Koreans, especially younger ones, to invest in volatile and risky assets, from stocks to cryptocurrencies, has worried regulators.
Their previous enthusiasm had helped place Luna and TerraUSD among the top ten cryptocurrencies in the world ranked by market capitalization.
But things fell apart on May 10, when TerraUSD’s 1:1 peg to the dollar was broken. On Wednesday, it was trading at about 10 cents.
Unlike most other large stable currencies that are backed by other assets, TerraUSD’s value is derived from complex algorithmic processes, linked to its paired Luna token, which floats freely.
Under this system, a TerraUSD token can be exchanged for $1 from Luna, and vice versa, and once exchanged, the coins are destroyed.
If the TerraUSD fell below $1, traders were encouraged to buy the stablecoin to exchange it for $1 from Luna, and thus reduce TerraUSD’s supply and raise its price to $1.
That was the theory, but the market proved that premise wrong.
As the market imploded, hundreds of outraged retail investors flooded social media with tales of misfortune, with some of them asking Kwon to make up for their losses.
Last week, Kwon announced plans to change the system so that TerraUSD will be backed by reserves in the future, but it’s unclear if that plan is feasible.
There is not much the government can do to protect investors, as cryptocurrency trading takes place outside its regulatory sphere.
