Is LUNA’s bounce back in the current market linked to UST
Terra’s LUNA has been on a strong and sustained price correction since 5 April. But it is finally registering an uptrend. However, this is an unusual timing because its rally in the last 24 hours took place when most of the top cryptocurrencies registered a bearish performance.
Looking back at LUNA’s performance in the last few weeks reveals that this is not the first time that its performance seems untethered from the rest of the market. Many cryptocurrencies started rallying around mid-March and peaked towards the end of the month or within the first three days of April. LUNA kicked off its rally on 23 February this year and extended the bull run until 6 April.
LUNA has been cooling down ever since its recent top, leading to a 37% pullback. Numerous events took place during the price correction such as the Nebula protocol deployment, Terra dapp expo, and Terra Global Founder Fellowship program. None of them were enough to stop the bears from pushing down the price.
However, the cryptocurrency registered a strong uptrend which saw it rally by 15% from the day’s low at $75.67. It traded at $89.61 at the time of writing.
Is LUNA’s rally linked to UST?
The most probable reason behind LUNA’s current rally is the increased demand for UST. The market-wide sell-off means people are selling their cryptocurrencies and holding on to their wealth in stablecoins to avoid value erosion.
Terra operates a mint and burn mechanism that regulates the amount of UST based on available demand. The mechanism requires LUNA in order to mint UST stabecoins, hence a strong surge in UST results in more demand for LUNA. It also means more LUNA is burnt to mint the stablecoin, thus reducing its circulating supply.
The above scenario would likely be backed by a strong increase in LUNA and UST volumes and market cap. LUNA’s volume increased from $908.6 million to roughly $3.1 billion in the last 24 hours. Its market cap also saw a substantial gain from $28 billion to $29.07 billion during the same timeframe.
UST’s volume grew significantly within the last two days from roughly $203 million to $607 million. Its volume has roughly tripled in the last two days, a sign that there is strong demand for cryptocurrency.