December 9, 2021
Cryptocurrencies: Daily Update
Despite the extended crypto selloff from the past few weeks, it looks like the market has finally settled down. Bitcoin (BTC) has been underperforming nearly all other large-cap Defi coins since the end of November, with Terra (WLUNA on Coinbase) taking the lead on a relative basis since late November.
So what is Terra and why has it been drastically outperforming every other large-cap since the start of Q4? Let’s get into it.
First things first, at $25 billion LUNA has officially breached the list of top 10 coins by market cap today, pushing out big names like Dogecoin (DOGE), Shiba Inu (SHIB), and Avalanche (AVAX). Despite being down 5.75% from the rest of the crypto market today, LUNA is the only coin within the top 10 to retain a positive performance on a 7-day rolling basis.
Terra issues two different cryptocurrencies, a defi coin (LUNA), and a stablecoin (UST). What has caused the defi LUNA to go flying in recent weeks has primarily been a token burn. Burning mechanisms for tokens are a deflationary feature built into a large portion of cryptocurrencies in order to prevent an infinite circulating supply.
The reason for Terra’s token burn is due to the fact that their UST stablecoin is backed by their speculative LUNA coin. In order to increase the supply of UST, Luna tokens are burned in order to lock in the value of the stablecoin. There are other dynamic rebalancing mechanisms built into the UST/LUNA blockchain that will ensure that UST will be tethered to the value of the US Dollar regardless of market volatility.
In theory, 1 USTerra will always be worth 1 US Dollar, and the same principle is supposed to apply to other stablecoin providers like Circle (USDC) and Bitfinex (USDT). However ,there have been some dubious issues with Tether (USDT) in the past year, especially once the issuer of the USDT stablecoin declared that roughly half of the circulating supply of their coin was backed by short-term corporate debt rather than actual US Dollars. As it stands, stablecoins are #1 issue on the docket for US regulators as they attempt to regulate the crypto industry.
Even if it isn’t explicitly stated, the main reason that US regulators feel they need to crackdown on stablecoins is their inherent fear that if the industry gets too big, crypto could threaten the US Dollar as the world reserve currency.
In our view, this simply is not the case! If anything, stablecoins being tied to the value of the US Dollar should demonstrate to regulators that not only is crypto not a threat to the Dollar, but it is arguably the biggest international on-ramp to the Dollar!
As the majority of large-scale stablecoins are tied to the Dollar, anyone outside of the US that wants to transact using a stablecoin will most likely have to do it with a US Dollar stablecoin. There are other stablecoins that are linked to fiat currencies besides the US Dollar. However, USD stablecoins have quickly become the global standard throughout the past year.
UST can be used to transact on any and all services built on the Terra blockchain, and serves as the stable currency within that network. LUNA is the speculative play associated with Terra, and at the current rate of growth, it looks like LUNA has plenty of potential to keep going and growing.
If you would like to check out LUNA, you can find it under the ticker WLUNA on Coinbase Pro’s exchange. Unfortunately, LUNA is not currently available on Kraken.
Coins to Watch: Ripple (XRP) has had an ongoing lawsuit from the SEC for the past 2 years or so which has prevented the coin from being traded on mainstream exchanges like Coinbase. As regulatory scrutiny over the crypto space seems to be slowly dissipating, XRP looks to be ready to come back in a big way. It is likely that the SEC v. Ripple Labs case will be settled in favor of Ripple within the next couple of months, which would see the coin relisted on US exchanges en masse.
Today’s Winners: At the midweek mark it looks like the crypto market is still under a lot of pressure, however it is a very good sign to see Bitcoin continuing to maintain support at its 200-day moving average. After leveraged positions were flushed out of the market last weekend, Bitcoin’s price looks to be entirely controlled by the spot market for the time being with perpetual futures open interest at the lowest level since May.
Today’s Losers: It is difficult to identify specific ‘losers’ when the entire crypto market has been down this week. Short-term technical analysis is looking bearish, but we expect the current lows to be near the bottom of the market’s trading range, especially with oversold readings on many of the largest cryptocurrencies.