Macro strategist Lyn Alden believes Terras (LUNA) is the youngest Bitcoin-Buying frenzy could be the catalyst that triggers a capitulation event for BTC and the rest of the crypto markets.
Over the past few months, the Luna Foundation Guard (LFG), the nonprofit founded to support Terra, has aggressively amassed $1.63 billion in BTC.
According to Terra founder Do Kwon, Terra’s massive Bitcoin purchases are intended to be domestic, dollar-pegged stablecoin Support TerraUSD (UST).
Now, the macro strategist is telling his 410,700 Twitter followers that a sharp drop in LUNA’s valuation could force LFG to tap into its Bitcoin reserves to keep UST stable.
“If Luna has a price drop similar to Fantom (FTM) or some of these other hard-hit cryptos, the UST peg would be at risk. If the UST peg is in jeopardy, the LFG would sell bitcoin reserves into an already soft market. This type of event could mark a cycle capitulation.”
Source: Lyn Alden/Twitter
Alden also points to another risk where bearish market conditions will force UST holders to convert the stablecoin to LUNA or BTC in order to achieve a payout.
“Unlike a crypto-collateralized stablecoin, there is no specific threshold at which UST breaks. However, if LUNA gets small compared to UST, the likelihood of an algorithmic bank run increases… Many of them would liquidate their BTC for cash since their positioning at the time was intended as a stablecoin.”
The macro analyst also points to another risk related to the Anchor Protocol (ANC), a savings and lending platform operating on the TerraBlockchain and allows users to earn up to 19.5% in Annual Percentage Return (APY).
According to Alden, Anchor Protocol’s high APY is a double-edged sword as it serves both as a demand generator for UST and as a ticking time bomb that could go off.
“Then there’s the unsustainable anchor yield time bomb. The time bomb isn’t about how well the decline in yields is managed. It’s about what happens structurally to UST demand when the primary demand driver (artificially high anchor yields) no longer exists.”
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Source: Crypto News Deutsch