Saturday, July 20, 2024

Terra avoids Ukraine concerns rallying 18% in three days — Can LUNA price reach $200 next?

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Terra (LUNA) has fared higher than its high crypto rivals on the subject of withstanding the damaging market impacts of the continuing Ukraine-Russia conflict.

LUNA’s price rallied practically 18% this week to over $58, greater than Bitcoin (BTC), whose returns in the identical interval got here out to be a bit of over 1.5%. Equally, the Terra token did higher than its rival Ether (ETH), which is up round 4% this week.

High ten belongings and their performances throughout a number of timeframes. Supply: Messari

Over the weekend, Bitcoin fell below its psychological support level of $40,000 as fears of a potential Russian invasion of Ukraine dampened risk-on sentiment. It continued declining on Monday after Russian President Vladimir Putin recognized two self-proclaimed separatist republics in jap Ukraine and ordered troops there.

Knowledge offered by CryptoQuant confirmed that the correlation between Bitcoin and the U.S. shares reached an all-time excessive on Feb. 23, suggesting BTC had not been performing as a secure haven in the present geopolitical battle.

Different cryptocurrencies additionally fell because of the Ukrainian disaster, with Ether falling by as a lot as 9.5% and XRP by 16.5% from their weekly WTD excessive of $2,760 and $0.80, respectively.

VCs purchase $1B price LUNA

LUNA’s rebound transfer picked momentum after the Luna Basis Guard (LFG), a nonprofit group supporting the Terra blockchain ecosystem, announced Tuesday that it had raised $1 billion by means of the sale of LUNA tokens. patrons included Three Arrows Capital — a enterprise capital agency led by Ethereum-skeptic Su Zhu — and Soar Crypto, a buying and selling group that earlier assisted Solana’s cross bridge platform Wormhole in replenishing their stolen $300 million.

DeFiance Capital, Republic Capital, GSR, Tribe Capital, and lots of others additionally contributed to the LUNA shopping for spherical.

LFG revealed that it could use the proceeds to construct a UST Foreign exchange Reserve denominated in Bitcoin. Intimately, UST (or TerraUSD) is an “algorithmic stablecoin” backed by LUNA reserves, such that when one mint a UST, they need to burn LUNA to maintain the stablecoin’s peg to the U.S. greenback intact.

UST financial construction defined. Supply: Murray Rudd

The brand new reserves intend to maintain UST secure particularly throughout excessive market volatility, whereby LUNA costs would possibly transfer erratically and disturb the soundness it intends to supply to the UST token holders. 

“The UST Foreign exchange Reserve gives a further avenue to take care of the soundness of the peg in contractionary cycles that reduces the reflexivity of the system,” stated LFG in a press release printed Tuesday, including that it might embrace different “main non-correlated belongings” to the reserve in the long run.

Soar Crypto, Three Arrows, and different patrons will not be capable to promote their LUNA holdings in an open marketplace for no less than 4 years.

Terra market outlook

Final yr, LUNA witnessed unbelievable price progress as a result of a increase in UST adoption. Knowledge compiled by Messari confirmed that the Terra token rose 14,000% in phrases of market capitalization whereas, on the similar time, the supply of UST tokens surpassed $10 billion.

UST provide vs. LUNA price. Supply: Messari, Terra Analytics

The sturdy correlation between LUNA’s price and UST’s progress emerged after the implementation of the Columbus-5 upgrade. The technical tweak decreased LUNA’s liquid provide by means of elevated burning and staking and elevated the UST provide by increasing its cross-chain prevalence.

Associated: Cointelegraph Consulting: The bigger role of LUNA in Terra

On the finish of 2021, the Terra community had burned about 89 million LUNA tokens (price $5.32 billion at present alternate charges) whereas bettering worth seize based mostly on the UST’s progress.

“Economically, will increase in UST demand concurrently outcome in the growth of the LUNA demand curve and contraction of the LUNA provide curve,” noted Will Comyns, a researcher at Messari, including that elevated UST demand would have a “nice impression” on the LUNA provide and price. Excerpts:

“If UST adoption continues to develop over time, it’s potential that LUNA provide will grow to be primarily fastened at some low degree in the long run. Burning 100% of seigniorage will dramatically speed up the discount of complete LUNA provide over time.”

Murray Rudd, an unbiased market analyst-cum-economist, noted that LUNA burning in conjugation with UST’s demand progress would increase its price to over $200 by the tip of 2022 and $920 a yr after that.

Nevertheless, one of many flip sides of the bullish outlook is the long-term optimistic correlation between Terra and Bitcoin. 

Particularly, the correlation coefficient between the 2 belongings was 40 factors beneath zero on weekly timeframes this Wednesday.

LUNA/USD weekly price chart that includes its correlation coefficient with BTC/USD. Supply: TradingView

Nonetheless, the metric remained optimistic by means of most of Terra’s historical past, suggesting that LUNA ought to proceed mirroring the broader cryptocurrency market on decrease timeframes. 

The views and opinions expressed listed below are solely these of the creator and don’t essentially mirror the views of Cointelegraph.com. Each funding and buying and selling transfer includes danger, it’s best to conduct your personal analysis when making a choice.