Terra (LUNA) fell significantly after witnessing a FUD attack on its original stable coin TerraUSD (UST).
The pair LUNA / USD fell 20% between May 7 and 8, reaching $ 61, its worst level in three months, after the whale massively dropped UST worth $ 285 million. As a result of this sell-off, the UST briefly lost pegged to the US dollar, falling to as much as $ 0.98.
Excessive supply to LUNA
LUNA serves as collateral to maintain UST dollar pegging, according to Terra’s resilient monetary policy. Therefore, when the UST value is above $ 1, the Terra protocol encourages users to burn LUNA and mint UST. On the other hand, when the price of UST falls below $ 1, the protocol rewards users for recording UST and minting LUNA.
Therefore, during the reduction of UST’s supply, LUNA’s value should decrease. Similarly, as UST’s offering expands, LUNA’s value grows, notes Will Comyns, a researcher at Messara.
The chart below shows the steady downward trend in the UST daily supply, which coincides with the relative increase in the LUNA daily supply. On May 8, the UST market experienced a contraction for the first time in two months, falling 28.1 million below zero. At the same time, LUNA’s offer rose by more than 436.75 million above zero.
Excessive daily supply relative to what appears to be a decline or stable market demand may have pushed LUNA’s price lower.
Still in pain for Terra?
Terra’s steady decline in prices has prompted LUNU to re-test a support basin consisting of a 50-day exponential moving average (50-day EMA; red wave) close to $ 56 and a multi-month uptrend.
Interestingly, the upward trend line forms a growing wedge pattern in conjugation with the second upward trend line above. Rising wedges are bearish reversal settings, so their appearance on Terra’s weekly chart suggests a larger drop is likely.
As a rule of technical analysis, increasing wedge failure pushes the price lower by as much as the maximum distance between the upper and lower trend lines of the structure.
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So, if LUNA breaks below its wedge from the current support estuary, accompanied by an increase in volume, its price would risk falling to around $ 22.50, which is more than 60% less than today’s price.
On the other hand, a rebound from the mouth of the support would position LUNA to run towards the top line of the wedge trend – above $ 130, which is a new record.
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