Macrostrategist Lyn Alden argues that the recent active Bitcoin acquisition of Luna Foundation Guard could trigger several threats to the cryptocurrency market.
Lyn Alden noted on Twitter that over the past few months, the Luna Foundation Guard (LFG), a non-profit organization created to support Terra, has been actively accumulating bitcoins and now its cryptocurrency balance reaches $1.63 billion. However, Alden is concerned about the possibility of a sharp decline in LUNA, which could force LFG to use reserves bitcoin to keep the UST stablecoin stable.
“If Luna falls in price like Fantom (FTM) or other recently hard hit crypto assets, then the UST backing will be at risk. In this case, LFG will sell bitcoin reserves to support the stablecoin in an already weak market. Such an event could mean the capitulation of the cycle,” Alden warned.
The crypto expert also noted the risk associated with a bear market. According to her, in a falling market, UST holders can convert stablecoins into LUNA or bitcoins and withdraw them into US dollars.
“Unlike a dollar stablecoin, a cryptocurrency-backed stablecoin does not have a specific threshold. However, if the LUNA becomes smaller compared to the UST, the likelihood of a transfer to LUNA will increase. Many of the investors will transfer their BTC to fiat,” says Audlen.
The macroanalyst highlights another risk associated with Anchor Protocol (ANC), a savings and lending platform on the Terra blockchain that allows users to earn an annual percentage of return (APY) of 19.5%.
According to Alden, Anchor Protocol’s high APY is a “double-edged sword” as it simultaneously creates demand for UST and a “time bomb” that could explode. If the main driver of demand – the artificially high profitability of Anchor – disappears, then the demand for UST will fall, as well as the rate, which will lead to the sale of bitcoins in an unstable market.
Recall that in April, the Luna Foundation, as part of its program to create a reserve to support its own algorithmic stablecoin, acquired another 4,000 bitcoins.
Source: Bits
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
