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Newsletter: What happened to USDT, UST, and LUNA | May 12, 2022

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“What’s happening?” Says 99% of Crypto Batch 2021.

What is happening to USDT?

The largest stablecoin by market cap – USDT or Tether – slipped to as low as $0.946 at cryptocurrency exchange FTX at around 3:10 pm Manila Time. As a stablecoin, USDT is supposed to maintain parity with the US dollar; It should always be 1 USDT = $1 most of the time with minor fluctuations.

According to Coindesk, traders are possibly selling USDT for actual US Dollars because of “poor sentiment for stablecoins” right now in the cryptocurrency space. Tether Inc (the company behind USDT) CTO Paolo Ardoino alleviated worries about USDT’s pegged value, reminding traders that the stablecoin can be redeemed back to US Dollar via their website https://tether.to. (Note: As I wrote this, USDT is back at $0.98-ish.)

This raises worries as to whether USDT itself is on the same path as UST. This leads us to our next segment:

What is UST?

While USDT is backed by actual fiat reserves (although questionable) that can be redeemed, UST (TerraUSD) is an algorithmic stablecoin that keeps its value because of another token called LUNA, the main coin of the blockchain of the same name. For brevity’s sake, 1 UST is supposedly redeemable to $1 worth of LUNA. At one point, 1 LUNA was worth $119. 

How does it work? Say UST drops to $0.98. This presents an opportunity to buy 1 UST for just $0.98, and then you trade that for $1 of LUNA. This is called arbitrage.

This in theory should put the price back to the peg of 1 UST = $1. 

To sum up: To maintain the price of UST, the LUNA supply pool adds to or subtracts from UST’s supply. Users burn LUNA to mint UST and burn UST to mint LUNA. Of course the bigger the difference is, the better the arbitrage profit will be. This, along with the fact that LUNA should have a larger market cap than UST, should also avoid a situation wherein a lot of people are redeeming UST for LUNA.

To further prevent that from happening, Do Kwon, its founder, said they bought billions worth of Bitcoin (we will go back to this later) to make sure it has further money to deploy in case of unlikely scenarios of UST losing its peg.

But it happened.

Why did UST Lose Its Dollar Parity?

UST

UST was not able to defend its peg and LUNA crashed too. It was a series of events but it’s possible that the major factor is clearly market uncertainty. With the market prices decreasing and as we appear to be heading to the bear market season, many people are clearly taking out their crypto for cold cash.

The other major thing is the Anchor Lending Protocol.

What is the Anchor Protocol?

In Anchor, people deposit their UST in order to reap 20% rewards. As per Coindesk, 75% of UST’s circulating supply is currently in Anchor and it was clear that many people buy UST just for the purpose of getting those sweet yields.

You know how these things usually go, when the yield rate starts decreasing, people will leave and go elsewhere. What happened here was that a lot of people started taking out their deposits to Anchor, which puts a huge selling pressure on both LUNA and UST.

LUNA

At some point, it was no longer possible to redeem 1 UST for $1 worth of LUNA. This led to the deployment of the Bitcoin reserves to try to defend the peg. For a time UST appeared poised to go back to the peg but confidence in the project appears to be at an all-time low. UST is at $0.41 and LUNA, which was once worth $119 is now worth $0.07.

It’s important to remember that USDT and UST are different. USDT is fiat-backed (but admittedly there are some questions about that) while UST is an algorithmic stablecoin. I am seeing articles and tweets calling the US regulators to make sure to differentiate between stablecoins like USDT and algorithmic stablecoins like UST.

This deserves its own segment but ultimately, stablecoins, I think, must be able to prove themselves in times of stress or else the Financial Action Task Force will continue calling them “so-called stablecoins” because they are not really stable. (Of course fiat has that problem too, but this post is getting too long.)

This newsletter is published on BitPinas: Newsletter: What happened to USDT, UST, and LUNA | May 12, 2022

Disclaimer: BitPinas articles and its external content are not financial advice. The team serves to deliver independent, unbiased news to provide information for Philippine-crypto and beyond.

The post Newsletter: What happened to USDT, UST, and LUNA | May 12, 2022 appeared first on BitPinas.

Following the Crash Towards $26K, What’s Next for Bitcoin? (BTC Technical Analysis)

After a few weeks of consolidation, Bitcoin was unable to increase and eventually broke to the downside. This resulted in a considerable liquidation cascade and a drop below the critical support level of $30K. Technical Analysis Technical Analysis Shayan The Daily Chart The market has now tapped the resting liquidity below the significant demand zone::Listen

After a few weeks of consolidation, Bitcoin was unable to increase and eventually broke to the downside. This resulted in a considerable liquidation cascade and a drop below the critical support level of $30K.

Technical Analysis

Technical Analysis Shayan

The Daily Chart

The market has now tapped the resting liquidity below the significant demand zone around $30K, but there are no signs of a reversal yet. Furthermore, the next support level for Bitcoin is $24K-$25K.

The RSI indicator, on the other hand, has crossed into the oversold zone and is seeking to break above it. This might signal a short-term reversal to the previously broken $30K-$32K level. The bears, on the other hand, have complete power, and a collapse to the $24K-$25K demand zone remains possible.

1
Source: TradingView

The 4-Hour Chart

Corrections are always present in a sustainable rally. After a massive bearish decline from $69K, Bitcoin has been building a continuation correction flag pattern and has lately broken below the lower trendline resulting in a massive cascade in the market. The price has finally broken the 2021’s low and registered a local bottom at $26K.

The last significant support at $37K has now become a key resistance level for the price, while the next support will be at the $24K-$25K demand region. Short-term consolidation and a range phase followed by choppy price action appear to be more likely in the coming weeks.

2
Source: TradingView

On-chain Analysis

By Shayan

Bitcoin’s price collapsed to $26K recently. The Short-Term Holder SOPR has plummeted to a multi-month low, resulting in a severe crash, as shown in the chart.

The same situation occurred in July 2021, when Bitcoin plummeted to $29K before rebounding to a new high following the final capitulation. The STH-SOPR indicator, on the other hand, showed lower levels during the capitulation phase in May 2021 than it does presently. As a result, the market is in a state of panic and uncertainty, meaning that the pain might not be over yet.

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Source: CryptoQuant

Newsletter: What happened to USDT, UST, and LUNA | May 12, 2022

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