Terra LUNA Falls to Earth as TerraUSD Dollar Peg Shatters

Key Insights:

• Terra (LUNA) slumps by 53% to return to September 2021 levels, with investor confidence in jeopardy.
• Market reaction to TerraUSD (UST) tumbling to sub-$0.75 on Monday weighed on LUNA.
• Technical indicators are bearish for LUNA, with LUNA sitting well below the 50-day.

On Monday, Terra (LUNA) slumped by 53.0%. Following a 5.55% decline on Sunday, LUNA ended the day at $30.19, with TerraUSD (UST) causing investor angst.

The extended sell-off saw LUNA fall to a current-year low of $29.73, a first visit to sub-$30 since September 2021.

Stablecoin UST saw its dollar peg shatter on Monday, sinking LUNA.

Bearish sentiment across the broader crypto market added downward pressure on the day.

Luna Foundation Guard Fails to Stabilize TerraUSD

Over the weekend, TerraUSD (UST) fell to sub-$0.99 levels, forcing the Luna Foundation Guard (LFG) into action.

On Monday, Terra Lab co-founder and CEO Do Kwon tweeted,

“The LFG Council just voted to deploy 1.5B in capital (0.75B in BTC, 0.75B in UST) to allay market concerns around UST. Some contest on why and how: twitter.com/LFG_org/status…”

1/ The LFG Council just voted to deploy 1.5B in capital (0.75B in BTC, 0.75B in UST) to allay market concerns around UST. Some more context on why and how: https://t.co/TfaAPkzgUJ

— Do Kwon 🌕 (@stablekwon) May 9, 2022

 

Do Kwon went on to add,

“The goal is to have this capital in the hands of a professional market maker such that:

• Buy UST if price< peg
• Buy BTC if price > peg

Thus significantly strengthening the liquidity around UST peg.”

2/ First, *LFG is not trying to exit its bitcoin position*.

The goal is to have this capital in the hands of a professional market maker such that:

1) Buy UST if price< peg
2) Buy BTC if price >= peg

thus significantly strengthening the liquidity around UST peg

— Do Kwon 🌕 (@stablekwon) May 9, 2022

 

However, moves to stabilize UST and restore its peg to the dollar on a 1:1 basis failed.

On Monday, UST tumbled by 23.91% to end the day at $0.7569.

Overnight, Do Kwon tweeted,

“Deploying more capital – steady lads.”

Deploying more capital – steady lads

— Do Kwon 🌕 (@stablekwon) May 9, 2022

UST last saw a material break in its dollar peg in September 2021. UST tumbled to an all-time low of $0.5376.

Market confidence in UST has yet to return. This morning, UST fell to a morning low of $0.6134 before striking a high of $0.8486. At the time of writing, UST is up 1.74% to $0.7701.

The UST de-pegging has not just impacted LUNA. On Monday, Anchor Protocol (ANC) plunged 49.1%. Anchor offers APYs of close to 20% on UST deposits.

Anchor saw its total value locked slide to $7.16bn today. The TVL had stood at a May 5 ATH of $17.15bn before the fall.

While the community raises questions over LFG’s intervention and decentralization, stablecoins could come under increased lawmaker scrutiny.

Lawmaker Scrutiny over Stablecoins Likely to Intensify

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.

Events this week may support the US Treasury representative Jean Nellie Liang’s policy concerns that included illicit finance, user protection, and systemic risk.

It remains to be seen whether lawmakers regather for another hearing to re-examine stablecoins and decentralization.

LUNA Price Action

At the time of writing, LUNA was up 9.84% to $33.16. A choppy start to the day saw LUNA slide to an early low of $26.05 before striking a high of $39.63.

Technical Indicators

LUNA will need to move through the day’s $41.75 pivot to target the First Major Resistance Level at $53.73. LUNA would need broader crypto market support for a return to $40.

An extended rally would test resistance at $70 and the Second Major Resistance Level at $77.28. The Third Major Resistance Level sits at $112.86.

Failure to move through the pivot would bring the First Major Support Level at $18.77 into play. Barring an extended sell-off, LUNA should steer clear of sub-$15. The Second Major Support Level sits at $6.21.

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 $70.88. 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.