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A surprise rally in Terra’s LUNC- Real potential or red sign?

Don’t invest unless prepared to lose all the money you invest. This is a high-risk investment, you shouldn’t expect to be protected if something goes wrong.

Terra LUNA
Terra LUNA

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With inflation and other economic crisis taking their toll on the global markets, there is no doubt that the cryptocurrency industry has suffered the biggest correction. Several incidents have also turned out to be catalysts in creating a bearish momentum in the market. Bitcoin, which was trading at its all-time high of around $67,000 just last year has fallen more than 70% since.

While the market was already in a red zone, one incident in May shocked a huge number of investors and crypto enthusiasts. The fall of Terra’s Luna(now renamed LUNC) was an unexpected instance as it was one of the most popular and well-performing assets in the space at that time. Let us take a look at the specifics before we talk about its recent hike

What is Terra (LUNC)

Terra is a blockchain protocol developed by Daniel Shin and Do Kwon to power price-stable global payments using fiat-pegged stablecoins. Based on its white paper, Terra combines fiat currency stability with Bitcoin (BTC)’s censorship resistance and offers fast and affordable settlements.

The stability of Terra’s stablecoins was achieved in part by its native token, LUNC. As a governance token, LUNC holders were also able to submit and vote on governance proposals, which gave it governance functionality. The cryptocurrency was one of the top-performing assets in 2021, with an exponential growth in price that was seen in a span of fewer than 2 months.

What happened

The whole incident started at the start of the second week of  May. More than $2 billion worth of UST was unstaked (taken out of the Anchor Protocol), of which hundreds of millions were immediately sold. Some question whether Terra’s system was hacked in response to a volatile period — rising interest rates have affected cryptocurrency prices in particular — or in response to a more malicious attack. The price dropped to 91 cents as a result of such huge sells. An arbitrage was attempted, exchanging 90 cents of UST for $1 of LUNA, but a speed bump appeared. The maximum amount of UST for LUNA per day was $100 million.

Thus the price started seeing a steady decline. Once it started, the momentum was so high that the price went low by more than 99.998% in just a couple of hours. This affected the entire market causing hundreds of investors to lose life savings in the process.

Do Kwon, the lead of Terra, came up with a recovery plan and introduced the Terra classic with its ticker as LUNA and changed the original one’s name to LUNC.

Good time to invest?

Sometimes, it is important to understand that an asset may infact, not rise back from the correction it made previously. The recent 50% hike in LUNC created a possibility of hope for many holders, with some even going as far as to say that the price can potentially go up to $5. This instance for eg; is more or less unachievable currently, since that would mean for LUNC to have a market cap of more than $34 trillion.

Thus, while the idea to stock up on a once favourite cryptocurrency may cross your mind, think again and analyse before you actually do it. The current price of LUNC is at the 0.00015 level.

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