- The collapse of the Terra network cost investors $40 billion.
- Binance's Changpeng Zhao says it never sold its 15 million LUNA, which was worth $1.6 billion at its peak.
- If you've lost money, it might be a good time to take stock and make a new plan.
Big and small investors lost billions in Terra's meltdown.
The collapse of Terra's LUNA and TerraUSD (UST) cost investors over $40 billion and shocked many in the industry. As the crypto community digests the impact of the network's implosion, some insiders are saying "I told you so" while others rue their support for the once-popular crypto.
For example, Galaxy Digital CEO Mike Novogratz, who was so enamored with Terra he got a LUNA wolf tattoo, told shareholders, "My tattoo will be a constant reminder that venture investing requires humility." He added, "It was a big idea that failed."
Binance CEO Changpeng Zhao (also known as CZ) said the company had 15 million LUNA, which was worth $1.6 billion at the token's peak. His "poor again" tweet may not sit well with retail investors who lost significant amounts of their savings. CZ may have lost money, but Bloomberg estimates his net worth is over $15 billion, ranking him No. 108 in the Bloomberg Billionaires Index.
Plus, it's easy to look at what something would have been worth if you'd sold at the peak. In reality, it's extremely difficult to time the market and sell at the highest point. It's more accurate to think that Binance lost $3 million -- that was the amount it originally invested in Terra. Binance received its LUNA tokens as part of its investment deal and it never sold them.
Binance pushes for LUNA to reimburse small investors first
Binance is one of the biggest cryptocurrency exchanges in the world. The exchange came under fire for suspending withdrawals of LUNA and UST early on in the collapse. It said this was due to network congestion, but the move frustrated many investors.
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Since then, CZ has pushed a message of transparency and user protection. "To lead by example on PROTECTING USERS, Binance will let this go and ask the Terra project team to compensate the retail users first, Binance last, if ever," he tweeted.
CZ has been frustrated by Terra's handling of the situation. He's joined other leading figures in the crypto world in pushing for funds to be given to smaller wallets. One proposal on social media suggested that if Terra focused on the "poorest" 99.6% of UST wallets, they could make this gigantic group 100% whole."
What to do if you lost money in the LUNA collapse
Many retail investors lost money as Terra and its network disintegrated. There are some heart-wrenching stories on the Terra Reddit forum of people who lost savings, either by buying LUNA or UST. For all the talk of revival plans and compensation, it doesn't look like investors can expect much from their Terra tokens.
You might recover a small percentage of your investment. But given the Luna Foundation Guard spent most of its reserves trying to prop up the ecosystem, there's very little money left. According to media reports in South Korea, Terra founder Do Kwon could face criminal charges, though it's too early to say how these will play out.
1. Think twice before buying more LUNA
Some investors are already buying LUNA tokens in the hope of a phoenix-like return from the ashes. Cryptocurrency investing is already risky enough without speculating on the recovery of a coin that's already collapsed spectacularly. I'm not a financial advisor, but it's extremely unlikely the Terra network can recover, and there's a high risk you'd be throwing good money after bad.
2. Make a new savings plan
Losing money is always difficult, especially if it throws your savings and retirement plans off track. Now that the initial shock has passed, it may be a good time to think about how you can rebuild. Start by taking stock of where you are financially, and looking at how you can realistically manage the situation.
If you're struggling to cover everyday expenses, don't ignore the problem. Reach out to creditors and look for any financial support you might be entitled to. If you're on top of bill payments, consider how much you might be able to put aside each month to rebuild your savings. Even a small amount of money each month can add up over time.
What's important is to make a plan that includes building an emergency fund, paying down debt, and building retirement funds. It won't be easy, but if you break it down into small, achievable steps, you can rebuild your finances.
3. Make sure crypto is only a small part of your new investment strategy
When you've lost a lot of money, it can be extremely tempting to take high risks in the hope of recovering your losses. Even more so if you saw the value of your crypto portfolio soar last year and hope it may happen again in the future. But cryptocurrency is a risky asset class and the way to build wealth for the long term is to have a mix of assets. Look at a way to hold safer investments such as cash, equities, bonds, and real estate. If that sounds daunting and you don't know where to start, it may be worth consulting a professional to get advice on how to build a diversified portfolio.
LUNA's collapse came as a shock to many investors, big and small. It showed how experimental this industry can be -- and how quickly the market can change. If you lost significant amounts of money, it may feel overwhelming. But the sooner you're able to face the situation and look for ways to rebuild, the better.
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