LUNA Tumbles 43% as UST Falls Back to sub-$0.80

Key Insights:

• Terra (LUNA) followed Monday’s 53% slump with a 43% tumble to return to sub-$20 for the first time since August 2021.
• A late sell-off coincided with TerrraUSD (UST) tumbling to a day low of $0.6134, further questioning the effectiveness of the Terra Lab algo.
• Technical indicators are bearish for LUNA, with LUNA sitting well below the 50-day.

On Tuesday, Terra (LUNA) slumped by 42.6%, pressured by TerraUSD (UST). Following a 53.0% slump on Monday, LUNA ended the day at $17.32.

The extended sell-off saw LUNA fall to a current-year low of $13.19, a first visit to sub-$20 since August 2021.

On Tuesday, efforts to restore stablecoin UST’s dollar peg failed. UST slid to a day low of $0.6134 before ending the day at $0.79 levels.

The downside came despite the broader crypto market enjoying a bullish session

Terra Labs and the LFG Fail to Restore the UST Dollar Peg

On Tuesday, any hopes of restoring the UST dollar peg were dashed. UST struck a day high of $0.9317 before tumbling to a late day low of $0.6134.

Overnight, CEO and co-founder of Terra Lab Do Kwon tweeted,

“Close to announcing a recovery plan for $UST. Hang Tight.”

Close to announcing a recovery plan for $UST. Hang tight.

— Do Kwon 🌕 (@stablekwon) May 10, 2022

 

In the early hours of this morning, he then tweeted,

“Getting close… stay strong, lunatics.”

Getting close … stay strong, lunatics

— Do Kwon 🌕 (@stablekwon) May 10, 2022

 

On Monday, Do Kwon attempted to calm the community and investors with a series of tweets.

Late on Monday, Do Kwon tweeted,

“Deploying more capital – steady lads.”

Deploying more capital – steady lads

— Do Kwon 🌕 (@stablekwon) May 9, 2022

 

The failure to restore the peg left LUNA and Anchor Protocol (ANC) deep in the red. ANC followed Monday’s 49.1% loss with a 40.7% decline on Tuesday.

Anchor offers APYs of close to 20% on UST deposits.

Anchor saw its total value locked (TVL) fall to $5.89bn today. The TVL had stood at a May 5 ATH of $17.15bn before two days of sharp decline.

Over the past 24-hours, Terra’s TVL slumped by 60.89% to $9.07bn. On April 6, the TVL stood at an ATH of $31.35bn.

This week’s events have placed stablecoins under the scrutiny of lawmakers.

TerraUSD Catches the Eye of US Treasury Secretary Janet Yellen

On Tuesday, US Treasury Secretary Janet Yellen targeted stablecoins during testimony on Capitol Hill.

Yellen told lawmakers,

“I would note that there was a report just this morning in the Wall Street Journal that Stablecoin known as TerraUSD experienced a run and had declined in value.”

She added,

“I think that simply illustrates that this is a rapidly growing product and that there are risks to financial stability, and we need a framework that’s appropriate.”

UST makes Congressional testimony faster than it recovers its peg. pic.twitter.com/SS7sJy7UBV

— Nathaniel Whittemore (@nlw) May 10, 2022

Late last year, stablecoins came under fire on Capitol Hill. The US Senate Committee on Banking, Housing, and Urban Affairs held a hearing on stablecoins. One area of focus was the possible effect of stablecoins on financial stability.

In February, the US House Committee on Financial Services held a hearing on stablecoins. Amidst mixed views, the US Treasury called for stablecoins to fall under the remit of ‘federally insured depository institutions.

Comments from Treasury Secretary Yellen suggest greater regulatory oversight of stablecoins and the crypto market. UST not only impacted LUNA but also ANC among others.

LUNA Price Action

At the time of writing, LUNA was up 2.02% to $17.67. A bullish start to the day saw LUNA strike an early high of $18.31 before easing back.

Technical Indicators

LUNA will need to move through the day’s $23.38 pivot to target the First Major Resistance Level at $33.56. LUNA would need broader crypto market support for a return to $30.

An extended rally would test the Second Major Resistance Level at $49.79 and resistance at $50. The Third Major Resistance Level sits at $76.26.

Failure to move through the pivot would bring the First Major Support Level at $7.15 into play. Another extended sell-off could bring sub-$5 levels into play.

Looking at the EMAs and the 4-hourly candlestick chart (above), it is a bearish signal. LUNA sits well below the 50-day EMA, currently at $60.92. This morning, the 50-day EMA pulled back from the 100-day EMA. The 100-day EMA also fell back from the 200-day EMA; LUNA price negative.

A move through the 50-day EMA would shift near-term sentiment.