Will LUNA Bounce Back Again?

Why the drastic crash of Luna?

LUNA token is a blockchain product of Terra Labs located in South Korea.

The raise of $32 million was to fund the LUNA blockchain through the private sale of the LUNA coin.

Luna was publicly launched in 2019, and it became the seventh-largest cryptocurrency by market capitalization in 2021.

However, as of mid-may 2021, Luna has fallen to the 213th position.

It is believed that the cause of the drastic crash in Luna's price was that the token lost its peg with the US Dollar.

To balance the peg, the total supply of LUNA increased from about 725 million tokens in circulation to about 7 trillion.

The most viable option for LUNA to gain its value is to burn a substantial amount of the token’s supply.

There are currently no plans for the token to get back on track, and Terra Labs are more concerned about their community.

Cryptocurrencies are unregulated and highly volatile, and the price rise and fall are subject to market forces such as demand and supply. Besides that, some other factors could lead mostly to the fall in the value of the crypto tokens.

In recent times, 2021, to be precise, cryptocurrency investors have had a bad run. The major crypto tokens keep declining in their value and price.

While the decline varies across the board, some are as bad as they could be. One of the prominent cryptocurrencies badly hit by price fall is Luna.

In this article, we shall identify Luna as a cryptocurrency, how bad the fall in value is, and the pointers that indicate whether it will bounce back or not.

Let's begin.

The events of May 10, 11, and 12 leave an indelible mark on the Terra Luna (UST) Cryptocurrency. As of May 5, each Luna token was worth about $85. By May 11, the value was already dropping, and it fared at about $17.38.

By May 12, all hell was let loose, and the value of Tera Luna dropped to $0.02863, showing a 97.54 percent decline in its price value.

In all these price fluctuations, the most affected stakeholder are the investors. Those who had a huge part of their investments in Luna woke up to a tiny fraction of the same unit they purchased.

When Luna had a price fall, many investors felt it was wise to “buy the dip” and HODL till it appreciated. It was shocking to see that the dip could have gone so deeper.

There are wide speculations that those who invested their life savings in Luna cryptocurrency are now left in financial ruins. However, all stakeholders are optimistic that the value will bounce back and regain its lost glory.


Luna As A Cryptocurrency

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Luna and TerraUSD (UST) are the native coins of the Terra network. Terra Network is a blockchain-based project under the auspices of Terra Labs located in South Korea.

UST is pegged at one dollar in the Terra ecosystem, and to create new UST tokens, the Luna coin will be permanently burnt. It is also expected that Luna can be swapped for UST and vice versa.

In funding Luna’s blockchain, a total of $32 million was raised through the private sale of the LUNA coin. Binance, Huobi, and OKEx were among the investors of the project.

Since LUNA was launched in 2019, it has attained the rank of the 7th largest by market capitalization. At the moment (26th May 2022), it has fallen to the 213th spot.

What could have caused this drastic fall? Let's take a look.


The Cause Of Luna’s Crash

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As said earlier, several factors are responsible for the rise and fall of the price of cryptocurrencies, and a drastic fall in price is called a crash.

Experts opined that the main reason behind the crash was that the Terra network stopped working as it used to work. However, there are no official statements to this effect.

The visible part of the crash was that the terra Luna token, UST, lost its peg to the US Dollar, and this marked the beginning of the fall in value.

To correct this peg to the US Dollar and ensure the price bounced back, the Terra Luna algorithm began to issue more Luna tokens. The more coins that were issued, the more the protocol went overdrive.

According to George Kaloudis, a Coindesk analyst, from May 5 to 13th, the total supply of Luna went from about 725 million tokens in circulation to about 7 trillion. The Luna algorithm issued over 6 trillion Luna tokens to circulation within that period.

In the same period, Luna lost about 99% of its value. The economics behind this drop in value is that trillions more of Luna tokens now exist compared to a few days back, and the more of a token in circulation, the less valuable it becomes.


How Luna Can Recover

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The question of “will Luna bounce back again?” is dicey. Albeit, experts and industry players opined that there are remedies to get back Luna to its glorious days.

One of the viable ways for Luna to bounce back is for the protocol to burn a large amount of its supply. Burning a substantial amount of the token’s supply will bring Luna back to its pre-crash levels.

Terra considers this method part of their recovery plan even though it seems impossible.

Finally, the founder and CEO of Terraform Labs, Do Kwon, said, “What we should look to preserve now is the community and developers that make Terra’s block space valuable – I’m sure our community will form consensus around the best path forward for itself, and find a way to rise again.”

This statement shows Terra hasn't come up with a viable plan to recover the price value of Luna. However, the stakeholders are paramount to the community, and retaining their loyalty is important.


Conclusion

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The cryptocurrency space is volatile. There are no specific guidelines for being safe or maintaining the profit, some events could occur, and the price will crash. Likewise, you might wake up to a boom.

In recent times, all prominent crypto tokens are witnessing a fall in price value with no immediate remedy.

While Luna is currently in its “dip” face, there are no immediate and viable solutions at the moment. However, all hands are on deck to ensure Luna bounces back to its glorious days.






Author: Valentine. A, Gate.io Researcher

This article represents only the researcher's views and does not constitute any investment suggestions.

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