Let’s kick off this weekly post where we got off last week, which is about the saga surrounding the complete collapse of the LUNA token and its parallel “stable” token UST. If you do not know about the events, we strongly recommend that you read ours first message from last week to fully understand the following.
One week later, the timeline of events is now clearer. During the first weekend of May, when stablecoin UST showed its first signs of instability after falling from its bond to the dollar at $ 0.985, Luna Foundation Guard, the nonprofit tasked with overseeing the health of Terra’s ecosystem, voted to distribute $ 1.5 billion in bitcoin and UST from its treasury in an attempt to reconnect UST to the dollar. This was the activation of a planned contingency plan in light of such a scenario where the fund had accumulated $ 3.5 billion in treasury consisting of bitcoin, avalanche, LUNA and UST. The goal was to use this capital to buy gigantic quantities of UST, which created a buying pressure that, according to the logic of the system, would drive the price of UST back to $ 1.
The next day, however, UST continued to fall. On Tuesday, when the price of UST hit a catastrophic low, LFG’s reserves were already almost empty. In fact, there are two transfers during this period, the first at 52,189 BTC to Gemini and the second at 28,205 BTC to Binance. Unable to confirm without a doubt that these tokens were actually sold to buy UST, but the bearish pressure on the price of BTC in the past week suggests so. This is what the fund’s reserves looked like on Monday:
Nothing worked. At the time of writing, a token of LUNA whose quantity has increased by 1,893,380% of the logic of the algorithm is worth less than 2 hundredths of a penny. UST is far from its assumed guaranteed dollar value as it is currently trading below $ 0.10.
Is it the death of LUNA and UST that a few days ago was in the top 10 projects in terms of capitalization? Definitely in terms of tangible value and reputation if you ask us. However, the project founder and the foundation did not necessarily have the last word. In fact, a vote on a plan hard fork suggested by co-founder Do Kwon stands as of this writing. The plan? Divide the current string in half. The goal is to allow purists to keep the current, collapsed blockchain, which will now be called the “Terra Classic”. The original token will be LUNA Classic (LUNC). The new chain will distribute 1 billion LUNA tokens among developers, UST holders and those who owned or invested in LUNA or its derivative projects before the stablecoin price fell. The redistribution will include earning plans and token locks for most LUNAs, apparently to avoid a sharp drop in prices as Terra finds out how to proceed without UST in its new protocol. Actually stablecoin would be completely abandoned for the successor.
The approach will remind longtime cryptocurrency enthusiasts of what once happened to Ethereum and Ethereum Classic.
In turn, the market was undoubtedly reassured by the success of the Tether token (USDT) in regaining its bond to the dollar. However, this does not happen without a mass emigration of holders. $ 7.7 billion from stablecoin was withdrawn, resulting in a 7.8% drop in market value over the past seven days. It is currently at $ 74 billion. Some investors rushed to swap their Tether for another popular US Dollar USD Coin (USDC) on the grounds that USDC has been revised and is already fully supported by cash and US government bonds. Tether claims the same thing, but there has always been doubt about the correctness of the company’s reservations.
Among the other news of the week, the latest data shows that China is not exactly absent from the bitcoin mining industry, after its complete exile last year. In fact, according to data from the Cambridge Digital Assets Program (CDAP), China has once again become a major bitcoin mining center, with underground miners accounting for more than one-fifth of the network’s hash rate. The report suggests that a significant proportion of Chinese bitcoin miners have found ways to adapt to the ban by using foreign proxy services to hide mining instead of leaving the country. The new data shows that China now accounts for 21% of Bitcoin’s hashrate, second only to the US, which generates 38% of the network’s computer work. “As the ban has taken hold and time has passed, it appears that illegal miners have gained confidence and seem satisfied with the protection offered by local proxy services,” the CDAP report said.
Once the hurricane has passed, we can now see the state of the damage in the last week. $ 1.2 billion in bitcoin derivatives were liquidated during last week’s carnage. According to data from Coinglass, over $ 1 billion of all cryptocurrencies were wiped out on May 8 alone – the highest figure in over three months. Bitcoin has also recorded a seventh bearish week in a row, a record dating back to 2014.
US stock markets appear to have stabilized this week. Could the conditions finally be conducive to some rebound for bitcoin? Analysts disagree on whether bitcoin has bottomed out. Will Clemente, chief analyst at Blockware, said he believes the asset is likely to hit a “multigenerational” price floor based on several indicators, including a “realized price” that is fast approaching. The realized price is the average base price of all bitcoin bought so far, last visited in a short period in March 2020. Raoul Pal’s analysis agrees and explains that with the action On the price drop last week, bitcoin may have “pulled straight down” to bottom of the current technical formation and is now in a range that will eventually lead to yet another price increase. “That’s exactly the kind of model we had in March 2020.” The index Crypto fear and greed dived to 8 on Tuesday, which by the way is the lowest since March 2020.
No inflation protection? The acclaimed Anthony Pompliano took the liberty of putting it all in context yesterday: “Bitcoin has risen 340% since March 1, 2020. While central banks around the world have devalued their currencies at a historic rate, there was only one asset, who stood out. #bitcoin is the savings technology that protects billions of people from unruly monetary policy. ”
So far, however, the market trend remains deeply correlated with US stock indices and fears of inflation. Comments from the Fed’s Jerome Powell yesterday, confirming continued pressure on financial conditions until inflation shows signs of easing, pushed bitcoin back below $ 30,000 and led to an opening in the stock market red today. Either way, it is when investors become desperate that the best opportunities to enter the market have historically emerged.
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Disclaimer: This column does not necessarily reflect the opinion of CryptonewsFR and does not constitute investment advice or trading instructions..
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