Terra (LUNA) Feels the Force of a Bitcoin Slide to sub-$35,000

On Saturday, Terra (LUNA) slumped by 12.0%. Following a 6.1% slide from Friday and a 4.4% decline on Thursday, LUNA ended the day at $68.07.

Market sentiment towards inflation and Fed monetary policy hit riskier assets on Thursday and Friday. Bearish sentiment spilled over the crypto market, with bitcoin (BTC) sliding to sub-$35,000.

Luna Foundation Guard Bitcoin Holdings Leaves LUNA on the Ropes

This week, the Luna Foundation Guard (LFG) purchased an additional $1.5 billion in BTC.

Do Kwon, co-founder, and CEO of Terra Labs, also announced the $1.5 billion BTC purchase on Twitter, saying,

“LFG acquired 1.5B worth of bitcoin over the last few days.”

In February, the LFG created a BTC denominated reserve for TerraUSD (UST), which supported the LUNA rally to an all-time high of $118.03 on March 4.

Bitcoin’s reversal has adversely impacted LUNA in recent days, with LUNA underperforming the broader crypto market. At the time of writing, LUNA is ranked #9 on CoinMarketCap, with Cardano (ADA) now holding the #8 spot.

According to Defi Llama, Terra’s total value locked currently sits at $23.78bn, down 15.8% over 24-hours. Terra’s (LUNA) total market cap at $22.55 billion, however, is down 10.5%, suggesting more LUNA downside.

While bitcoin’s fall to sub-$35,000 and TVL divergence has impacted, there is also influence from the UST pegging mechanism to the US dollar.

At the time of writing, UST was up 0.19% to $0.9954. UST fell by 0.57% on Saturday, with UST sliding to a day low of $0.9831 before ending the day at $0.9935.

A UST fall below $1.00 forces the sale of LUNA, adding further downward price pressure on LUNA.

Unlike Tether (USDT), UST’s peg to the US dollar is maintained through algorithms rather than cash and debt reserves.

To support the UST peg at $1, traders sell LUNA for UST when the price of UST sits below $1. This reduces the supply of UST and increases the supply of LUNA. The reduced supply of UST supports a move back towards $1.

LUNA Price Action

At the time of writing, LUNA was down 3.54% to $65.66. A bearish start to the day saw LUNA slide to an early morning low of $61.71. The First Major Support Level at $61.68 delivered early support.

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