Why Did Luna Crash?

What is Terra (LUNA)?

Technically Terra is the name of the crypto asset, and LUNA is its ticker symbol.

More people still refer to the LUNA crash rather than the Terra crash however, so as not to confuse it with stablecoin TerraUSD, ticker UST. Although UST crashed too, despite being a stablecoin.

Terra (Luna), the cryptocurrency backing the UST stablecoin, has taken a massive hit in market capitalization over the past couple of days. The LUNA token is most recognized for backing a stablecoin pegged to the US dollar, TerraUSD (UST). 

While the entirety of the crypto market has taken a hit over the last couple of weeks, the LUNA price has seen one of the worst dips in price, losing over 90% of its value. While macro factors are playing a role, the instability of LUNA’s stablecoin UST has caused panic for both UST and LUNA holders.

With LUNA well off its highs some may see a buying opportunity. However, a bottom has yet to be found for the token, as the price continues to plunge. Downwards pressure on Bitcoin has most altcoins trading lower, further murking the waters for LUNA’s future. 

Why Is Luna Going Down?

Luna’s decline in price was ignited by a number of reasons, most importantly was UST losing its peg to $1 and dropping to as low as $0.68. This occurred when UST dipped just slightly below its $1 peg, which is not uncommon for stable coins but was becoming a clear problem for UST. The volatility of the broader markets exacerbated the situation, and soon, UST holders were cashing out of the coin altogether in exchange for other stable coins. 

With Terra Luna failing to serve its purpose in stabilizing UST, the price per coin began to drop rapidly. Just over a month ago LUNA was trading at roughly $115 per coin. Following UST’s depeg to the dollar, the LUNA token now trades below $3 per coin.

The 30 years old Do Kwon had something of a reputation on Twitter for arrogance, in some circles, so some think it may have been a personal attack as well. One theory was put forward by the founder of Cardano Charles Hoskinson, although he later deleted the tweet.

He tweeted that a large institution borrowed 100,000 Bitcoin from Gemini exchange. They then exchanged a large amount of that BTC for UST over the counter (OTC) with Do Kwon at a discount. He agreed, lowering the UST liquidity.

That institution then allegedly dumped large amounts of both BTC and UST on the market causing a liquidation cascade of leveraged longs, slippage and panic selling by investors, many of which sold their LUNA holdings and unstacked their UST to sell it.

The tweet alleges that Terra was a Ponzi scheme that didn’t have enough BTC reserves on hand to prevent that crash. None of these claims are verified and Gemini denied issuing any such loan. However, market manipulation is common in all financial markets.

Hoskinson (@IOHK_Charles) later tweeted that even if Gemini’s tweet is accurate, someone did launch an attack on Terra. Who that was is unknown for now, and social media is rife with speculation and different explanations.

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