You might have been quietly confident that you made a sensible bet if you had invested in Luna a month ago. At the time of writing, Luna's value is worth around 4p.

Luna was not the only victim in a week when cryptocurrencies were down 30%. Some have recovered to a certain extent, but this still represents an aggregate seven-day loss of over US$500 million, prompting questions about the future of the market.

Terra is a stable coin that is supposed to match the US dollar but is currently trading at just 18 cents. The partner coin, Luna, collapsed.

An attack of this nature involves placing multiple trades in the market in order to cause certain effects, which can provide the attacker with significant gains.

In this case, the trades caused Terra to fall and brought Luna down as well. This caused panic and caused market withdrawals, which caused further panic. Big falls can come into effect once perception and confidence are shaken, and some stable coins rely a lot on this.

The recent falls in cryptocurrencies have called into question the stability of stable coins. They are designed to have zero volatility by keeping a peg to an underlying asset.

Black Wednesday was the day that the effects of this week spilled over into the whole space. The leading stable coin, Tether, lost its peg and fell to 95 cents on the dollar, possibly showing the need for regulation. If stable coins aren't stable, where is the safe space?

Crypto confidence

The future of cryptocurrencies will be dependent on how investors respond. Some people are comparing the crash to a run on the banks. With bank runs, customers tend to be more worried about their bank being unable to give them money than they are about their money becoming worthless.

When the stock market crashes, investors worry that the stocks and shares they hold may soon be worthless. The reaction to the crash suggests that a lot of people in the industry view their investments in the same way.

There is an assumption that the asset price will keep going up despite historical price fluctuations. The investor doesn't want to miss out. They see the rising asset and then invest.

The investor may put in more after initial successes. The fear of missing out on gains is combined with social media.

Many will have invested in cryptocurrencies because they thought it would make them richer. The belief has been shaken.

The idea that cryptocurrencies will eventually replace traditional forms of financial exchange may be one of the reasons for investing in them.

The power of cryptocurrencies over traditional money is demonstrated by any increase in their value. A significant decline in the value ofcryptocurrencies is not simply a monetary loss, it is an ideological one.

An investor group is less likely to sell in the face of a sharp fall because of this ideological stance. This group may provide hope for the sector.

We talk about a return to fundamental value in stock market crashes. It is assumed that the fundamental value is zero. Maybe there is at least some fundamental value that is based on belief. The size of the investor pool who own cryptocurrencies because they believe in its long-term future, and the promise of a new money, may determine the fundamental value of the coin.

We can better understand the behaviors we are seeing if we consider the investors as different groups. We may have seen the worst of this crash, but investors can take solace in the fact that better times may be ahead. As any financial adviser will tell you, there is nothing guaranteed in the market.

The article by Richard Whittle, Stuart Mills, andGavin Brown, Associate Professor in Financial Technology, University ofLiverpool, is being re-posted under a Creative Commons license. The original article is worth a read.