What is dead may never die
In finance, there are no absolute truths. If you read headlines that suggest something with absolute certainty, it might actually pay to take the opposite of the bet. This is especially true for cryptocurrency projects that appear to fail spectacularly.
Over the years, there have been various instances where words like “end” and “death” have had no meaning. Starting with Bitcoin, it has had over 400 apparent obituaries so far, where “Bitcoin is dead” became the popular notion. While some of the recent events listed were not as threatening, before 2020, things were different, and swaying the market sentiments towards an apocalypse was much more manageable.
Besides Bitcoin obituaries, many altcoin projects have also been revived handsomely after failing horribly. Today, I will list some of them and provide clues on how to play these events for some decent short-term gains.
In June, Celsius, the defunct centralized crypto lending platform, suspended withdrawals, and a fair amount of information proved that the company faced insolvency issues. Still, that didn’t stop the price of its native token, CEL, from jumping to $1.2 from lows of $0.28 within a week.
The company then filed for bankruptcy in July. Despite that, the following month, its price surged 400% from $0.77 to a peak of $3.86, riding a wave of a short squeeze and takeover rumors.
During both instances, the perfect buying opportunity was offered by headlines such as Celsius Has Paused Customer Withdrawals and “I Am Suicidal”: Celsius Customers Respond to Firm’s Bankruptcy.
CEL token price chart. Source: Coingecko.
Terra is particularly interesting for today’s discussion. The project met a colossal “end” in June when its native token, LUNA, dropped to $0.0000001, as people lost confidence in the algorithmically pegged stablecoin UST.
Even after facing severe criticism from the community, Do Kwon, Terra’s founder, led the launch of a new blockchain. He tried to draw parallels between Ethereum’s DAO hack in 2015 to Terra’s collapse, promising a bright future for Terra.
Currently, two versions of Terra exist: Terra 2.0 (LUNA) and Terra Luna Classic (LUNC). Terra is a new blockchain with the same account balances as the old one but without the algorithmic pegged stablecoin. The older version is now called Terra Luna Classic (similar to Ethereum Classic), which continues to run the original code.
Outrageous as it may sound, both tokens returned significant gains of over 300% for LUNA and 1000% for LUNC after changes such as burn tax on transactions were introduced in late August.
Terra (LUNA) and Terra Luna Classic (LUNC) price action. Source: Coingecko.
Ripple Charged with Securities Law Violation
On December 23, 2020, the U.S. securities authority filed a lawsuit against Ripple for allegedly selling unregistered securities. During that week, the XRP price fell 70% to 17 cents.
However, it bounced back within a month to reach highs of 75 cents—a 450% increase. Its rise continued into 2021, thanks to the crypto bull run and the company’s efforts to contest the charges in court. XRP rose to a peak of $1.4 last year.
XRP price chart. Source: Trading View.
While the above are a few recent examples, there have been many in the past, such as 51% attacks on Ethereum Classic and DeFi hacks, where projects have bounced back from their lows. However, this does not mean investing in all failures, but only the ones that make a lot of noise going down.
If you notice, the theme across the failures has been similar. Buying during the week when the catastrophe happens and selling within a month (or two) when good news or a short squeeze flips the market sentiment has been an effective strategy. Eventually, these projects may fade into oblivion, however, the absolute death of popular projects in this space is never a surety. Instead, it presents an opportunity to buy at a local bottom.
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