Terra price up 75% in February as $2.57 billion worth of LUNA tokens have been removed from supply

Terra (LUNA) emerged as one of the best performing financial assets in February, a month full of geopolitical conflicts and their negative impact on the crypto market.

LUNA decouples from the crypto market

The price of LUNA rose just over 75% to $91.50 at UTC’s close of the month. In comparison, the percentage performance of other top tokens, mainly Bitcoin (BTC) and Ether (ETH), came in at around 12.25% and 9%, respectively, over the same period.

LUNA/USD vs BTC/USD and ETH/USD weekly price charts. Source: TradingView

Interestingly, most of LUNA’s gains in February surfaced on the last day of the month. The Terra token rose 26% on Feb. 28, in part due to similar upward moves elsewhere in the crypto market. For example, BTC and ETH rose 14.50% and over 11.50% respectively on the same day.

While still positive at 0.09, LUNA’s correlation with Bitcoin has faded lately after reaching 0.81 on Feb. 21, data from TradingView shows. A correlation of 1 means that two assets are in lockstep, while 0 indicates that their price is moving independently.

LUNA/USD correlation coefficient on the daily chart. Source: TradingView

Terra’s LUNA/BTC pair also showed its growing appreciation against the major cryptocurrency.

In detail, the LUNA/BTC pair rose more than 56% to 21,171 satoshis in February, suggesting traders are hedging in the Terra token as Bitcoin’s correlation with a bearish stock market grew, reaching 0.70 earlier this year.

Bitcoin correlation with stocks since March 2021.Source: Bloomberg

When asked why traders seemed to have viewed LUNA as their temporary safe haven in the first place, the answer could lie in Terra’s token economy.

29M Terra Tokens Destroyed

Data retrieved by analytics platform Smart Stake showed that Terra protocol recently burned 29 million LUNA tokens worth $2.57 billion. That happened when the supply of TerraUSD (UST), a stablecoin backed not by the US dollar but by LUNA, increased from about 11.26 million on February 1 to almost 12.92 million on February 28, an increase of almost 14 .75%.

LUNA and UST will deliver in February 2022. Source: Smart Stake

Traders view increasing UST delivery as a bullish catalyst for LUNA, mainly because of the so-called UST-LUNA token model. In detail, Terra maintains the peg of UST to USD through an elastic monetary policy. So when the value of UST goes above $1, Terra incentivizes its users to burn LUNA and mint UST.

But when the UST supplies contract, LUNA’s valuation declines due to a slowdown in the combustion mechanism. Overall, LUNA’s valuation is rising along with UST’s offerings.

On February 22, the Luna Foundation Guard (LFG) – a non-profit that supports the Terra blockchain ecosystem – announced that it had raised $1 billion in a LUNA token sale round led by Three Arrows Capital, a venture capital firm backed by Ethereum. skeptic Su Zhu and Jump Crypto, a trading group known for assisting Solana’s bridging platform Wormhole to replenish their stolen $300 million.

LFG revealed that it would use the proceeds to build a “UST Forex Reserve”, raising its prospects of increasing the stablecoin’s supply by another billion dollars in LUNA-backed tokens.

The price of LUNA has increased by almost 90% since the announcement of the LFG. In contrast, the total market cap of all cryptocurrencies combined has increased by only 13% over the same period, underscoring that crypto traders have flocked to the Terra market.

What awaits LUNA?

Terra’s technical outlook appears to be bullish due to ongoing bull flag breakout movement.

Bull flags are bullish continuation patterns that appear when the price consolidates lower in a bearish channel after a strong move upwards. Eventually, it breaks out of the channel range upwards, with a price target ideally equal to the magnitude of the upward movement that preceded the formation of the bull flag.

LUNA appears to have entered the final phase of the bull flag configuration as shown in the chart below. It now sees a run up to $120, a record for Terra if it is reached.

LUNA/USD three day price chart with bull flag setup. Source: TradingView

On the downside, LUNA’s volumes on the 3-day chart appear weak, showing that the ongoing upward retracement remains less convincing for traders. The volume profile also shows little historical activity above $70.

Related: $300M in Crypto Liquidations Accompany Bitcoin’s Rise to $44K

Additionally, LUNA’s daily relative strength indicator (RSI) flashed an “overbought” warning, noting that it could trigger some price correction in the coming sessions.

LUNA/USD daily price chart with RSI. Source: TradingView

Nevertheless, in the long run, the Terra token’s path of least resistance remains on the upside, with a year-over-year performance against the dollar coming in at over 1,200% as of February 28, 2022.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Coin-Crypto.com. Every investment and trading move involves risks, you should do your own research when making a decision.

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