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Early on May 8, BTC recorded a new low, leading to the risk of breaking the LUNA – UST pattern.
Bitcoin makes a new bottom in Q2/2022
The second Sunday of May is too “numb” as the value of the world’s largest cryptocurrency Bitcoin continues to make a new bottom, negatively affecting other altcoins.
At 5 am this morning (May 8), Bitcoin is only $34,785 – the lowest level since February 24, when Russia and Ukraine had a conflict that affected the global economy. By 12:32 AM, the price of BTC recorded a drop to $34,368. The lowest price in the last 24 hours is $34,210.
It was thought to bounce back on May 5, when BTC surged to $40,000, but in the following days, BTC lost more than $5000. This sharp drop is explained as a consequence of the Fed’s announcement of the move. interest rate increase by 0.5%.
Not only Crypto, the US stock market last Friday also experienced “flaming colors” when most of the codes fell.
Over the past hours, over $125 million in crypto derivatives orders have been liquidated, with 85% of them long. The difference in these liquidations is the appearance of LUNA, alongside BTC and ETH which are often the hardest hit. Specifically, up to 11 million LUNA were liquidated in a short time.
LUNA – UST model “vibrates strongly”
Just this morning, the price of Terra (LUNA) has collapsed more than 29% since the peak of $88 on May 5. Terra’s lowest price is near $61.69. This leads to the risk that the UST algorithmic stablecoin may lose the 1 USD mark (de-peg).
The way UST and LUNA exist is based on their special relationship to hold prices. The UST stablecoin is generated based on the algorithm and the amount of LUNA locked in the smart contract. When having the LUNA key, the investor will receive a corresponding amount of UST and can be swapped at will. In addition, it is also possible to receive APY interest up to 18% (previously 20%) if sending UST on Terra’s Anchor Protocol lending protocol.
Over the past several months, this has been considered a key driver of the growth of Terra, LUNA, UST and Anchor. Thanks to the safety of stablecoins and high interest, liquidity has continuously poured into these cryptocurrencies. UST rose to become the 3rd largest stablecoin in the crypto market in April (behind only USDT and USDC), while Terra also recorded TVL in 2nd place, behind only Ethereum.
However, another stream of opinions believes that the LUNA – UST model is just a form “ponzi”, when long-term maintenance is not possible. Numbers 18% bonus essentially just the money that Terra Platform spends to pump Anchor to pay participants. The evidence of this allegation is that users only deposit money, not borrow, so Anchor’s revenue earning seems to be zero. It is estimated that Anchor funds may run out in 34 days.
Another risk of UST losing the $1 mark comes from the fact that LUNA is locked to keep UST down, making the value of UST accordingly higher than LUNA. Therefore, if this situation happens, investors will sell both UST and LUNA, creating a chain effect that breaks the whole pattern.
This morning, this signal happened to both LUNA and UST. Unusual price fluctuations and trading volume. UST fell to $0.9857 at one point – the lowest level since Bitcoin’s $10,000 “dump” in May of last year.
In addition, UST’s pool, Curve, witnessed the massive withdrawal of investors. The report states that the pool is currently unbalanced, with 69% UST and 32% CRV. In the past 24 hours, the trading volume is 45 million USD, while the value of Curve is only about 21 million USD.
The total value of key assets (TVL) of the Terra ecosystem also decreased slightly this morning. Many leading DeFi protocols such as Anchor also see liquidity flowing out.
Faced with speculation about the unsustainability of de-peg ($1 of UST), Terra created a new fund in the form of other cryptocurrencies, called Luna Foundation Guard (LFG).
It is known that LFG bought up to 1.5 billion USD worth of Bitcoin just recently (May 5), bringing the total assets of the fund to nearly 3.5 billion USD. Of which 90% is BTC, the remaining percentage is allocated to other coins such as LUNA, AVAX, USDT and USDC.
But unfortunately, perhaps LUNA itself did not expect that BTC would drop so quickly, causing the platform to suddenly “swing to the top” overnight.
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