LUNA drops 20% in a day as whale dumps Terra’s UST stablecoin — selloff risks ahead?

CoinTelegraph

Terra (LUNA) has plunged significantly after witnessing a FUD attack on its native stablecoin TerraUSD (UST).

The LUNA/USD pair dropped 20% between May 7 and May 8, hitting $61, its worst level in three months, after a whale mass-dumped $285 million worth of UST. As a result of this selloff, UST briefly lost its U.S. dollar peg, falling to as low as $0.98.

UST daily price chart. Source: TradingView

Excessive LUNA supply

LUNA serves as a collateral asset to maintain UST’s dollar peg, according to Terra’s elastic monetary policy. Therefore, when the value of UST is above $1, the Terra protocol incentivizes users to burn LUNA and mint UST. Conversely, when UST’s price drops below $1, the protocol rewards users for burning UST and minting LUNA.

How To Get Free Crypto  

Therefore, during UST supply reduction, LUNA’s valuation should decrease. Similarly, when UST’s supply expands, LUNA’s valuation increases, notes Will Comyns, a researcher at Messari.

The chart below shows an ongoing downtrend in the daily UST supply, coinciding with a relative increase in daily LUNA supply. On May 8, UST’s market underwent contraction for the first time in two months, dropping by 28.1 million below zero. Simultaneously, LUNA’s supply expanded by over 436.75 million above zero.

Daily change in LUNA and UST supply. Source: SmartStake.io

The excessive daily supply against what appears to be a lowering or stable market demand may have pushed LUNA’s price lower.

More pain for Terra ahead?

Terra’s ongoing price decline prompted LUNA to retest a support confluence consisting of its 50-day exponential moving average (50-day EMA; the red wave) near $56 and a multi-month upward sloping trendline.

Coinbase Banner  

Interestingly, the ascending trendline constitutes a rising wedge pattern in conjugation with another upward trending line above. Rising wedges are bearish reversal setups, so their occurrence on Terra’s weekly chart suggests more downside is probable.

LUNA/USD weekly price chart featuring ‘rising wedge’ setup. Source: TradingView

As a rule of technical analysis, a rising wedge breakdown pushes the price lower by as much as the maximum distance between the structure’s upper and lower trendline.

Related: Luna Foundation Guard acquires additional 37,863 BTC as part of reserve strategy

Thus, if LUNA breaks below its wedge from its current support confluence, accompanied by an increase in volumes, its price would risk falling to around $22.50, down over 60% from today’s price.

Conversely, a rebound from the support confluence would have LUNA positioned for a run-up toward the wedge’s upper trendline — above $130, a new record high.

FreeBitcoin Banner  

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Go to Source
Author: Yashu Gola


Recommended Crypto Services, Products and Strategies:

The first thing any crypto investor needs is is a reliable and secure Crypto Wallet.  Whether you’re looking for an online wallet, hardware wallet, desktop or mobile wallet, Crypto Renegade provides you with all the Best Crypto Wallets in each category.

Best Crypto Wallets Banner

When you’re ready to buy more crypto, or exchange your coins for others, Crypto Renegade’s list of the Best Crypto Exchanges has you covered.  The Crypto Exchanges recommended here offer everything from simplicity and convenience to advanced trading platforms and profit sharing. 

Best Crypto Exchanges Banner

If you want to learn more about the methods and tools that can be used to find Great Crypto Projects, then be sure to check out Crypto Renegade’s strategy for How To Find The Best Cryptocurrency.

Crypto Strategy Banner

For those people that don’t have any money to invest right now, or just want to understand the technology a bit more, you’ll definitely want to check out Crypto Renegade’s Free Crypto Strategy and start collecting Free Coins today!

Free Crypto Banner

What do you think about cryptocurrency? Do you have any questions about it? Be sure to leave a comment below.

This site uses Akismet to reduce spam. Learn how your comment data is processed.