Terra (LUNA) resumed its upward march this week as the price per token jumped more than 30% for three days.
The price of LUNA hit nearly $100 on March 9 after an intraday rally of 15%, approaching its all-time high of $106 as of December 2021. At the week’s low so far (WTD), it was trading Terra token at $75.60.
LUNA/USD daily price chart. Source: TradingView
More than 120 million LUNA already burned
The recent purchase in the Terra market appeared to be due in part to similar recoveries elsewhere in the crypto market. For example, Terra’s biggest smart contract competitor, Ethereum, saw Ether (ETH) rise by 13.50% over the same period. Similarly, Bitcoin (BTC) also jumped more than 14% from its WTD low below USD 37,200.
Arthur Cheong, the founder of Defiance Capital, hinted on Wednesday that LUNA price rose due to Terra’s ability to capture at least $1 trillion or more in decentralized stablecoin market space through its own US dollar pegged token, TerraUSD ( UST).
The total addressable market size for the de-facto decentralized stablecoin is at least a few trillion dollars.$LUNA
— Arthur ⛩️ (@Arthur_0x) March 9, 2022
Notably, the supply of UST tokens reached more than 1.4 billion on Wednesday, the highest level to date, according to data provided by Smart bet† At the same time, the Terra protocol has permanently removed 120 million LUNA tokens from the stockpile.
To summarize, LUNA maintains UST’s dollar peg. So if the price of the stablecoin rises above $1, the Terra protocol burns LUNA and more stablecoins are created. Similarly, if the price of UST falls below $1, LUNA’s valuation will fall at the same time due to a slowdown in the combustion mechanism.
UST vs LUNA stock in the last 30 days. Source: Smart Stake
So, increasing UST supply has likely fueled LUNA’s price rally, in addition to the broader crypto market recovery.
Terra TVL reaches all-time high
LUNA’s gains also appeared against the backdrop of more capital pouring into the Terra ecosystem.
The total value locked (TVL) within the Terra protocol increased from nearly $18 billion at the beginning of this year to $25.58 billion as of March 9, the highest level to date. This includes a spike in total locked LUNA tokens from 215.80 million to 298.89 million over the same period.
Terra total value locked from March 9, 2022. Source: Defi Llama
Terra also emerged as the highest stake of all cryptocurrencies on a modified 24-hour timeframe, with more than $35.75 million worth of LUNA tokens now locked across multiple platforms, according to data source Stakingrewards.
What’s next for the LUNA prize?
While LUNA looks poised to set a new all-time high this week, longer-term technical indicators point to the possibility of downside risk.
Related: Ethereum’s TVL Dominance Drops to 55% as Bloomberg Analyst Outlines a Bearish Target of $1.7K
For example, LUNA/USD has shown a clear bearish divergence between rising prices and falling momentum, as evidenced by the weekly Relative Strength Index (RSI) – which has been hitting lower highs since early 2021 – in the chart below.
LUNA/USD Weekly Price Chart. Source: TradingView
Similarly, volumes tied to LUNA’s recent weekly price rally also appeared weaker, further suggesting that underlying upward momentum may be stalling. If this happens, LUNA is at risk of a sharp pullback to test its exponential moving averages (EMA), primarily the 20-week EMA (~$64) and the 50-week EMA (~38), as support.
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