How Complexity Anticipates the Crash of Cryptocurrencies

In the past few days we have witnessed the collapse of the Luna cryptocurrency and its associated TerraUSD (UST) stablecoin, burning billions of dollars. The chart below shows the evolution of the price of Luna. Funny that a stablecoin – designed to provide stability – has almost suddenly lost 100% of its value.

Image source.

We don’t normally monitor cryptocurrencies but, given the above situation, we have performed a quick assessment of how our QCM2 technology could have delivered early-warnings as to the crash had we been monitoring and trading Luna and other cryptocurrencies. We took the last 100 days of data, looking only at the closing price. Different analysis window sizes have been considered.

Window of 16 days.

Window of 48 days.

In both cases, the sudden peak in the C3 indicator points to an imminent crisis or disruption. In the case of the 16-day window, the early warning is of approximately 36 days. In the case of the 48-day window, the pre-alarm sounds 8 days before the crash. In reality, we always use two different window size and run two or more analyses in parallel. This way we obtain confirmation of the single alarms.

In the case of Bitcoin, the situation is as follows:

Window of 32 days.

Window of 40 days.

The early warnings before the crash are of 10 days in both cases, including an even earlier warning between 5 to 10 days.