Hash (SHA1):
D3DA4D50DE7654576F68A8C3E30BE78792BA95515BB4662473616C0820CEE486
No.: Lianyuan Security Knowledge No.058
2024/12/4 Extreme negative premium on exchanges caused by martial law in South Korea
Event Overview:
On December 3, 2024, South Korea was in political turmoil, and President Yoon Seok-yeol suddenly announced that the country was under "martial law"! You read that right, martial law! This means that the government is ready to suppress any opposition, even militarily. The government of a country actually went to such a radical extreme, and the market was of course shocked.
The moment this happened, the price of Bitcoin on Upbit dropped below $66,000, XRP dropped to $1.3, and ETH dropped to $2,712. This was not a simple "technical correction", but a panic escape by investors. All funds began to leave the market in large numbers, and no one dared to bet on what would happen to this "powder keg".
Analysis of the causes of the crypto market crash:
Panic spreads
Huge exchange premium
Insufficient market liquidity
2022/5/13 Luna explosion caused a crypto crisis
Event overview: Luna collapse: Seemingly an accident, but actually a carefully planned conspiracy!
1. Insufficient liquidity: Suicidal operation starting from 150 million UST
On April 1, LFG moved 150 million UST to establish 4pool, hoping to build a stablecoin empire. What was the result? The liquidity of 3pool shrank sharply in an instant, and the market control fell directly into the hands of big funds. LFG thought he was smart, but in fact he had already been a "fat sheep" on someone else's chopping board.
2. BTC minefield: BlackRock and Citadel’s game plan
LFG bought BTC crazily to stabilize UST, but it didn't expect to swallow a time bomb prepared by the giants. The giants borrowed 100,000 BTC to raise the market price and squeeze UST liquidity. In the final blow, Do Kwon was deceived into buying more BTC in OTC, and the entire market instantly went out of control.
3. May 8: The fatal attack
The attackers attacked with precision: exhausting 3pool liquidity, dumping UST on a large scale, and triggering panic selling. LFG frantically sold BTC to protect the market, but the more it protected, the more chaotic it became. UST was completely decoupled, and Luna support collapsed. The Anchor scam was exposed, and market confidence collapsed.
4. Luna’s unlimited issuance: the final stranglehold
LFG tried to save the market by changing the rules to increase the UST exchange throughput, which resulted in unlimited Luna issuance. More Luna flooded into the market, and the price plummeted to zero. Everyone who thought they were smart eventually became a victim.
Ending: Already Doomed
This was not an accident, but a carefully planned hunting operation by the giants. LFG has been heading towards a dead end step by step since the removal of liquidity. Do Kwon's arrogance, the attacker's precision, and the market's madness have all contributed to this shocking collapse.
Analysis of the causes of the crypto market crash:
The relationship between UST and Luna collapsed: Luna and UST adopt the algorithmic stablecoin model, which is maintained stable through the "destruction-minting" mechanism between Luna and UST. The "minting and destruction mechanism" of Luna and UST is actually like a paper wall from beginning to end. Stablecoins do not have an actual "fund pool" to support their value, and they rely entirely on trust in the air. And this trust is very sensitive to the actions of giants. UST is decoupled, Luna cannot support it, and finally plummets.
Market manipulation and liquidity attacks: Institutions such as Blackrock and Citadel, which are considered to be the masterminds behind the manipulation of big capital, directly attacked the liquidity of Luna and UST through large-scale transactions and fund operations, ultimately leading to the collapse.
The fragility of decentralized finance: The Luna incident highlights the fragility of decentralized finance (DeFi) protocols. Algorithmic stablecoins are not designed to withstand large-scale market shocks, especially without adequate safeguards.
2024/8/5 Japan's interest rate hike leads to global financial tsunami
Event Overview:
On August 5, 2024, the global financial market experienced an unprecedented plunge, especially the Japanese and Korean stock markets. By the close of the day, the Nikkei 225 index plummeted by more than 13%, setting a record for the largest single-day drop in history; the Korean KOSPI index also fell by 10%, the largest drop since 2008. At the same time, the U.S. stock futures market also fell sharply, with Nasdaq futures falling by more than 5%, S&P 500 futures falling by 2.8%, and Dow futures falling by 1.15%.
In the cryptocurrency field, Bitcoin (BTC) once fell below $53,000, a drop of more than 10%, and Ethereum (ETH) plummeted by more than 26%, falling below $2,100. This series of market crashes caused 230,000 people to be liquidated in the cryptocurrency market within 24 hours, with a total liquidation amount of up to $883 million.
Analysis of the causes of the crypto market crash:
Spillover effect of yen appreciation: The impact of yen appreciation on global markets is not limited to Japanese and Korean stock markets. Globally, especially in the cryptocurrency market, the return of yen carry trades has had a negative impact on the market. Investors need to close these high-risk assets, which has led to a sharp drop in crypto assets such as Bitcoin and Ethereum.
The US government may sell Bitcoin: There have been recent reports that the US government may sell seized Bitcoin. The news of large-scale Bitcoin transfers to new addresses has triggered market concerns about the increase in Bitcoin supply, further exacerbating market panic. With miners selling and large investors clearing their positions, there is an oversupply of funds in the market.
Market supply and demand imbalance: The decline of Ethereum and Bitcoin is also closely related to the pressure on the supply side. Since July, the massive sell-off of Bitcoin miners has further exacerbated the selling pressure in the market. The decline in the share prices of Bitcoin miners also reflects their operational difficulties. At the same time, the selling behavior of market makers such as Jump Trading has also exacerbated the panic in the market.
The commonality behind black swans: anatomy of market fragility
Each "black swan" event may seem accidental, but in fact it is a multiple exposure of the fragility of the underlying logic of the market. From the martial law in South Korea to the Luna explosion, to the interest rate hike in Japan, their superficial reasons are different, but the underlying logic is surprisingly consistent:
1) Collapse of the trust system
What does the market rely on? Capital flow? Technological innovation? None of them are correct. The core is trust.
South Korea’s martial law has shattered investors’ trust in social stability;
The Luna collapse destroyed algorithmic stablecoins’ reliance on market confidence;
Japan's interest rate hike has burst the bubble of confidence in global capital flows.
Once trust is broken, the fragility of the market will collapse quickly like dominoes.
2) The collapse of the liquidity illusion
Liquidity is the blood of the market, and black swan events invariably reveal one fact: liquidity has never been truly stable.
Negative premiums on Korean exchanges expose liquidity vacuum in regional markets;
Luna’s fund pool design is like a paper window when facing large-scale withdrawals;
After Japan raised interest rates, global capital flowed back, directly draining the liquidity of high-risk assets.
The real danger is not that the market has no money, but that the market has no money left. When trust breaks down, liquidity disappears faster than anyone can imagine.
3) “Decentralization” does not mean risk reduction
The myth of the crypto market is that it uses "decentralization" as its selling point, but it cannot escape the shadow of traditional finance.
Luna's algorithmic stablecoin claims to be a "decentralized currency", but was defeated by traditional giants in one fell swoop;
Bitcoin is supposed to be a “digital gold” to hedge against inflation, but it plummets in every global economic crisis;
The market controlled by market makers and whales is more opaque than traditional finance, and any slight disturbance will trigger a stampede.
The so-called myth of decentralization is essentially still a manipulation game of centralized capital and power, but it has just been staged in a new way.
4) Leverage is a ticking time bomb
Every crash is accompanied by a key word: leverage.
Under the martial law in South Korea, a large number of leveraged transactions were directly liquidated, further exacerbating the panic;
During the Luna crash, UST’s depegging and liquidity attack left leveraged traders with nowhere to escape;
When Japan's interest rate hike triggered a global sell-off, the liquidation of leveraged funds made the situation even worse.
The existence of leverage makes the market appear vibrant, but in the face of a black swan, its double-edged sword nature always ruthlessly cuts through all vulnerable links.
5) Black swan events are carefully designed
Black swans are never random, but a bloody game of hunting and design.
The political crisis in South Korea may be accidental, but it is by no means accidental that institutions took the opportunity to manipulate exchange prices;
The Luna incident was a liquidity stranglehold precisely designed by traditional financial institutions;
Behind the financial crisis caused by Japan's interest rate hike, arbitrage institutions and miners sold off simultaneously, triggering a chain reaction in the market.
Ordinary people see "accidents", while capital sees "opportunities".
Deep logic: the rules of the game in the capital market
The bottom line is that black swan events in the market occur frequently.
To ordinary people, black swans are unpredictable accidents;
For capital giants, black swans are carefully designed "harvesting modes".
The essence of the market is that the strong prey on the weak and big capital manipulates the rules. When cracks in the rules appear, those who know how to exploit them will become rich, while most people can only become sacrifices.
In the face of a black swan, the only thing ordinary investors can do is:
Don't be superstitious about market stability, don't rely on leverage, and don't chase the trend. Learn to stop losses, avoid risks, and always keep yourself at the table.
How ordinary people can protect themselves from black swan events:
Black swan events are a financial massacre for ordinary people. They tell us again and again: the market is not your friend, the rules are not fair, they only serve the strong!
1) Don’t be a believer, be a skeptic
Every crash reveals a cruel truth: faith can hurt you.
Investors in the Korea Exchange firmly believed that "the market would recover", but the 30% negative premium made them lose everything overnight.
When Luna collapsed, all the "believers" who held on to UST were buried alive.
After Japan raised interest rates, investors who believed that "Bitcoin is anti-inflation" watched BTC plummet by more than 10%.
Rule 1: Don’t trust the market, especially don’t trust deceptive slogans like “decentralization”. Only by doubting everything can you protect yourself.
2) Run faster than others before the risk comes
Ordinary people always wait until the storm comes before they flee in panic. Being slow means starting from scratch!
On the day of the martial law declaration in South Korea, smart capital evacuated the exchange immediately, and the rest were retail investors who were harvested.
Before Luna’s collapse, big investors left the market as soon as UST de-anchored, while small investors were fantasizing about a “V-shaped reversal”.
As soon as the rumor of Japan's interest rate hike came out, smart money has withdrawn from high-risk assets, leaving retail investors with only the aftermath of a collapse.
Rule 2: When there is a slight disturbance, it is better to run ahead and miss a wave of market than to bet that "the market will recover". The market is cruel and it never waits for slow people.
3) Leverage is poison, don’t touch it!
Why do retail investors always get hurt in the chain liquidation during a sharp drop? The answer is simple: retail investors love to use leverage.
The 30% plunge in the Korean exchange instantly triggered leveraged trading, and retail accounts were wiped out.
When Luna collapsed, all leveraged players were wiped out, their accounts were reduced to zero, and they even owed money to the exchange.
After Japan raised interest rates, more than $800 million in crypto assets were liquidated, 80% of which were the blood and tears of highly leveraged players.
Rule 3: In this game, leverage is a meat grinder, don’t use it! Cash is king to survive in a crisis.
4) Always keep cash and refuse to go “all in”
The most fatal mistake ordinary people make is to always think about "turning things around overnight", and end up putting all their assets into high-risk investments. Once a black swan comes, everything will be wiped out, leaving them with no chance of a comeback.
After South Korea imposed martial law, Bitcoin plummeted by 30%. If you don’t have cash reserves, you will be forced to sell at a loss.
After the Luna incident, investors who held on to UST were left with no room and ended up with nothing.
Japan's rate hike triggered a global sell-off, and only those with cash bought the bottom and made profits after the crisis.
Rule 4: Keep at least 30% in cash and don’t let yourself become someone who can’t afford to lose.
5) See the nature of the black swan: it is a hunt, not an accident
Ordinary people must realize that black swans are never "natural disasters."
During the martial law incident in South Korea, market giants used the premium mechanism to reap the chips of traders.
Behind the collapse of Luna is the precise attack of the giants on decentralized idealists.
Amid the storm of Japan's interest rate hikes, big capital used panic as a weapon to gobble up high-risk assets at low prices.
Rule 5: Don’t imagine that rules will protect you, they will only protect the giants. Learn to use the rules to serve yourself and always be alert to the signs of hunting.
6) Learn to stop losses in time
The market will not reward your persistence. The longer you delay, the worse it will be. Those who are unwilling to stop losses will eventually become the most trapped.
Luna’s investors held on to UST’s depegging, and their assets were eventually reduced to ashes.
After Japan raised interest rates, retail investors were waiting for a "rebound", but what they got instead was a deeper plunge.
Rule 6: When everything is clear, brake decisively! A small loss is a successful defense, and a big loss is a complete failure.
Conclusion
There is only one core lesson from black swan events: the market is never kind, but it always gives those at the table a new opportunity.
I would rather miss a 10% increase than have a fantasy of a black swan.
It is better to earn less but leave yourself enough room for retreat;
It is better to doubt all opportunities than to easily believe in any "sure-win myth".
I hope you can look at the market with a wise eye.
