Terraform labs, in the recent days dumped the whole BTC reserve and dragged the entire crypto space into a deep bearish well. Bitcoin price visited the rock-bottom levels, hitting the support levels that it hard surpassed in December 2020 and never visited. On the other hand, in the spotlight of the crash, LUNA went deep down below $0.3 and UST hovered around $0.67 to $0.7.
Now when the prices appear to be extremely volatile, the possibility of a massive drop ahead is extremely possible. And hence jumping in with a long trade may not be fruitful at the press time. However, on the contrary, much before the LUNA price, the UST may make a huge comeback to regain its peg at $1. Yet the LUNA may continue discovering lower support constantly until UST stabilizes a bit. But why UST first?
The reason is pretty simple, the ‘Peg-Mechanism’, where-in new LUNA tokens are minted as and when the UST price losses its peg. As per Terra Analytics, more than 2.7 billion LUNA tokens have been minted in the past couple of days. And on the other hand, nearly 5.86 billion UST tokens have been burnt at the same time.
Therefore, when the supply crisis marks an entry into the UST ecosystem, the prices are compelled to be stabilized. But on the contrary, the LUNA prices may undergo a serious crunch as new tokens may keep on flooding the space for some more time. And hence the prices may be inversely impacted for an extended period.
Currently, Terra’s price has slipped heavily below $0.3 after tanking by more than 100% ever since the crisis began. In such a case, if the prices keep on dropping until UST regains the $1 peg, then the LUNA price may drain heavily adding up a couple of zeros in its price.
The LUNA price has now lost the lowermost support at $0.29 and continues to plunge below $0.25. Therefore, displaying a huge chance of sliding below $0.1, adding up a zero to its value very soon. However, the recovery is still pretty unclear as the traders lose their confidence as no buying volume is recorded despite Terra’s (LUNA) price being at a heavily discounted price.
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Source: https://coinpedia.org/news/this-is-why-terrausd-ust-may-hit-1-before-terra-luna-price/