What Role Does Terra (LUNA) Have In Bitcoin & Market Capitulation?

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The post What Role Does Terra (LUNA) Have In Bitcoin & Market Capitulation? appeared first on Coinpedia - Fintech & Cryptocurreny News Media| Crypto Guide

A well-known Crypto analyst and strategist, Lyn Alde, is of the opinion that the recent Bitcoin purchase by Terra (LUNA) could be the reason for Bitcoin’s upcoming bull run along with other cryptocurrencies.

In the last few months, the non-profitable organization called Luna Foundation Guard (LFG) which is built to support Terra is seen accumulating Bitcoin to the tune of $1.63 billion.

As per Do Kwon, Terra’s founder, Terra’s move towards a massive Bitcoin buy is due to Terra’s native stablecoin called TerraUSD (UST).

In a Twitter post, the macro strategist, Lyn Alden informs his 410,700 Twitter followers that if LUNA’s valuation sees a drastic fall, then this will force the LFGto to get into Bitcoin reserves to keep the UST stable.

“If Luna has a similar price decline to Fantom (FTM) or some of these other hard-hit cryptos, the UST peg would be at risk. If the UST peg becomes at risk, the LFG would be selling Bitcoin reserves into an already soft market. That type of event could mark a cycle capitulation.”

Moving further, the strategist, Alden points towards another risk where the bearish cycle will force UST holders to convert the stablecoin into LUNA or even BTC in order to get the cash out.

Unlike a crypto-collateralized stablecoin, there is no specific threshold where UST breaks. However, if LUNA gets small relative to UST, the probability of an algorithmic bank run increases.

And then there's the unsustainable Anchor yield timebomb, but that's another matter.

— Lyn Alden (@LynAldenContact) May 1, 2022

Another risk that Lyn Alden indicates is the risk that includes the Anchor Protocol (ANC), a platform known for savings and lending built on the Terra blockchain that allows users to earn a 19.5% annual percentage yield.

Hence, as per the strategist, the high APY of Anchor Protocol is like a double-edged sword as it acts as a demand creator for UST and also like a ticking time bomb which can blast anytime.

“Then there’s the unsustainable Anchor yield timebomb. The time bomb is not about how well-managed the yield decline will be. It’s about what happens to UST demand structurally when the primary demand driver (artificially high Anchor yields) no longer exists.”

At the time of reporting, Terra (LUNA) is trading at $86.74 with an increase of 6.42% over the last 24hrs.

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