Terra Luna UST Algorithmic Stablecoin Crash (6 painful reminders and lessons learnt)

It was a crazy, crazy weekend in crypto when Luna and Terra’s algorithmic stablecoin depegged from $1 and couldn’t keep the massive selldown from happening.

I never held UST or Luna before this meltdown, and I decided to gamble and catch falling knives, thinking that Luna’s CEO will save the day…but alas! I speculated with $6500-ish, and I think strongly believe that amount has gone for good.

I’ve been reading and listening on how so many people lost their entire life savings, some even their family money and it’s just been so heart breaking. Cry and grieve. It’s brutal. Just brutal.

But pick yourself up again, and start over.

For those who are still grieving, take a look at this from thewokesalaryman.

I was mulling over the events (as well as losing of some money), and was reminded of 6 important lessons in crypto investing:

Crypto is volatile AF

I believe crypto is an emerging sector in the S&P and economy, but right now, it’s not yet regulated. So it can be cowboy town with more than 90% shitcoins, rugpulls and scams left right center.

If you wanna enter crypto, please please please:

  • DYOR = do your own research
  • Don’t borrow money you dont have to speculate and gamble (you can win big, yes, but you also can lose big).

Diversify

I dont recommending going balls-deep and all-into crypto.

At most up to 20% of your total networth can be crypto, but even then, I wont put all this into one or two coins. It’d be diversified within crypto to a bunch of coins to spread out risks.

Yes, the rewards may be lower, but the #1 rule of investing is to not lose money.

Take profits** (rule of 2-5X)

This is a very, very important skill, rule and decision you need to learn and execute.

I learnt this when I entered crypto in 2017, doubled my paper gains, and refused to sell. It came crashing down more than 80% of my original amount (profits wiped out as well as principal — cry me).

Multiple similar experiences happened since then, and I learnt that I cannot always sell at highest and neither can I buy at lowest. The best solution for me was the Rule of 2-5X.

The most conservative approach is Rule of 2X, which means that once I double my money, I pull out my original investment. Eg if I invested $100 and it becomes $200, then I need to pull out $100. I can leave the remaining $100 to run and grow as house money. And take the $100 to invest in another. This is the most basic and conservative approach.

What I prefer is rule of 3X, where I can pull out 1.5X and leave another 1.5X to run. This means that I pull out both original invested amount AND profits already. And leave whatever balance to grow more.

Stable, regulated assets

Stable, regulated assets includes stuff like

  • rental properties
  • index funds
  • ETFs / individual stocks

These may not give the crazy growth like crypto, but they aren’t crazy volatile either lol – rental properties can be great for regular cashflow. Index funds are pretty standard returns, and great especially if you have time on your side.

Bitcoin and Ethereum

I think that in the end, whatever I budget for speculation and investment in crypto (say 20% of my networth), a big bulk of that will be in the blue chip of crypto ie Bitcoin and Ethereum.

These two seem to be the gold and silver equivalent, and maintain their value fairly well, despite market volatility and up downs. So if I have $1000 budget for crypto, what I will do is allocate $800 to Bitcoin and Ethereum; and the balance $200 to higher-risk-higher-return speculative crypto projects.

Diversifying and increasing your income is my answer

Learning to earn more income outside your main job continues to be my focus moving forward.

There are just so many benefits to building a profitable side hustle, from

  • diversifying from one main income
  • meeting and networking with more people
  • side hustle can be scaled bigger and more profits
  • etc

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