Bitcoin Price Nears $30,000 As Luna Foundation Guard Liquidates Wallet

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The price of bitcoin has dropped over 50% from its November 2021 peak and is down over 11% today, approaching the $30,000 mark, leaving many investors struggling to figure out what is going on.

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Right now, there are two main factors putting pressure on Bitcoin prices: Caleb FranzenSenior Market Analyst at Cube Analytics, said TechCrunch. “As liquidity drains out of the financial system, risky assets are revalued,” Franzen said.

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Franzen said a higher rate environment combined with weaker economic activity creates a risk-free environment. “In many ways, this is why both Bitcoin and stocks are falling together. Since bonds do not provide a safe haven, investor sentiment is overwhelmingly negative.”

Again, this adds a recursive element to the market whereby negative performance leads to negative sentiment, leading to even more negative performance, Franzen noted. “Historically negative results, historically negative sentiment, and historical earnings acceleration are the main drivers of the ongoing selloff.”

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A number of market sources are also saying that a huge sell-off is happening right now in tandem with the depegging of the TerraUSD (UST) algorithmic stablecoin over the past few days.

Terraform Labs (TFL) – the organization behind UST, LUNA cryptocurrency and Luna Foundation Guard (LFG) – sold all my bitcoins, about 42,530 bitcoins or $1.3 billion today. “That [sale could] will increase pressure from bitcoin sellers and could send markets down,” Corey Miller, head of growth at dYdX, told TechCrunch.

The UST stablecoin lost its 1:1 dollar peg for the second time in three days and fell as much as 5.3% to 95 cents on Monday, when it should always be kept very close to $1. The depegging of UST forces LFG to liquidate both LUNA and bitcoin reserves in order to fix UST’s $1 peg, Franzen said.

But UST is designed to take a beating because it is an algorithmic stablecoin, Twitter user stablechen, developer Terra, tweeted. “Compare if the US dollar falls to $0.90 or $1.1 against the US dollar — the peg bends in one and breaks in the other,” Stablehan said. “I blame TFL for creating the wrong expectation with previous posts implying instant anchor stability.”

Terraform Labs, which is led by founder Do Kwon, announced earlier this year that it plans to raise $10 billion in bitcoin for reserves to “open up a new monetary era of the bitcoin standard.” The funds were supposed to be held in the Treasury to support UST in a decentralized foreign exchange reserve to keep the value of the stablecoin at a fixed level.

kwon tweeted earlier today that he was “deploying more capital” but provided no further details. He also tweeted that “LFG is not trying to get out of its bitcoin position,” adding that “the goal is to have that capital in the hands of a professional market maker,” so this greatly bolsters liquidity around the UST peg.

But Terraform Labs is selling its bitcoins en masse in a marketplace that is already heavily traded. Jack Melnick, a token researcher at TIE, told TechCrunch. He added that from a technical point of view, this is not anchor support.

“They will just crash prices and continue to bleed,” Melnik said. “Then if they support the price, it will allow everyone else to lower their UST risk and leave them with no money in the treasury to keep the peg.”

LUNA, the UST-backed token, “burns” when its stablecoin deviates from its peg, Melnick said, so he’s trying to keep the price at $1 to protect LUNA from further burns, but in turn, this causes prices to drop further. . , which Melnick called “a dubious challenge”.

“UST failure will have a significant impact on the crypto ecosystem,” said Simon Furlong, co-founder and chief operating officer Geode Finance,” TechCrunch said in an email. “There is over $18 billion (UST market capitalization) of UST-related liquidity in the wider DeFi space where UST is used as collateral and in LP positions that could be wiped out and cause a ripple effect of negative outcomes across all DeFi markets. “.

Melnick noted that as the market as a whole reduces risk and Anchor rates fall, people care less about higher returns and more about safety. (Anchor is a decentralized savings protocol that offers low-volatility returns on Terra stablecoin deposits.)

“So they started exchanging UST for USDC, USDT which is backed by cash or cash equivalent,” Melnick said.

Unpegging the UST is likely to dampen demand for marginal or less popular stablecoins, Furlong said, but not the end of stablecoins in general. Similar to Melnick’s view, if the UST peg cannot be trusted, “we will see a flight to safety as users sell UST for more reliable stablecoins like DAI, USDC, etc. that will benefit from the scenario. in which UST loses its peg,” Furlong added.

UST is currently valued at $0.963392according to CoinMarketCap at time of publication.

“Because LFG is essentially forced to liquidate BTC to stabilize the stablecoin, we have a large organization throwing thousands of BTC into the market,” Franzen said. “Essentially, it’s an algorithmic margin call.”

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