AFTER enjoying strong gains in 2021, the crypto Luna briefly plunged below $1 on Wednesday, capping off a disastrous week for the coin.
The crypto market has slumped in May, and most major coins have suffered severe losses.
Luna’s sudden price collapse comes as a surprise because it’s a stablecoin.
Stablecoins are backed by other assets in an attempt to limit volatility.
Luna saw its first major spike last summer and climbed through the fall and winter.
The coin’s price peaked at $116 in early April, but it’s sitting at $2.55 as of May 11 and down 90% in the past 24 hours, according to CoinMarketCap.
Any cryptocurrency investor must be aware that it’s not a guaranteed way to make money.
Their values are highly volatile and can make large swings with no notice, meaning you may lose all the cash you put in.
That’s why it’s important to not invest more than you can afford or into anything you don’t understand.
There’s also scant regulation for cryptocurrency firms, meaning you’re without protection if and when things go wrong.
What is Luna?
Luna, also known as Terra, is one of two major coins created by Terra Labs, a South Korean company.
The Luna Foundation Guard, the organization that supports Luna’s price, has nearly 30,000 bitcoins in reserve to back the stablecoin, according to Bitcoinist.
The other coin from Terra Labs, TerraUSD or UST, is linked to Luna.
According to Coindesk, the price of UST is “algorithmically stabilized” through smart contracts involving its sister coin.
UST is pegged at $1 through a process of destroying Luna coins and minting UST.
Theoretically, this process is supposed to make Luna more valuable as it becomes more scarce, and keep the price of UST from moving above its $1 benchmark.
A drop in UST price created an unstable market for the stablecoin, however.
“The slump in the Luna is tied to the selloff that ensued after millions of tokens were issued to restore UST’s 1:1 peg,” Finder.com markets editor Luzi Ann Javier told The Sun.
“Stablecoins were supposed to shield investors from the gyrations in the crypto market with its peg to the dollar.
“When that peg was broken, it shook investor confidence not just in stablecoins but across decentralized finance.”
Luna broke $1 for the first time in January 2021 and struggled to break past $35 until July.
From there, the price of Luna tumultuously climbed to new peaks every few months before cratering this week.
As a result of Luna’s price collapse, UST dropped to $0.55 after sitting consistently around $1 since January 2021, according to CoinMarketCap.
Luna price prediction
Luna has dropped more than 97% this week, from a seven-day high of $87.80 to $2.55.
Nevertheless, Wallet Investor predicts that Luna will regain its losses and hit new highs before the end of the year.
PricePrediction.net expects Luna’s price to average $182 next year, and $265 in 2024.
These price predictions are far from guaranteed though, so you should always do further research and proper analysis.
Luna’s founder is attempting to secure additional funding to help restore UST to $1, but that involves selling Luna at a 50% discount in the short term, Javier said.
“Over the long term, the success of that plan could help restore confidence in the market. Whether that plan succeeds is the big question mark.
“Until then, I wouldn’t be one of those looking to catch a falling knife by jumping into Luna,” Javier said.
We’ve also revealed price predictions for other cryptocurrencies including Bitcoin, Dogecoin, Shiba Inu, dYdX, and EO.
The Sun also broke down the price of ApeCoin.
And read how Elon Musk’s plan to buy Twitter impacted the price of Dogecoin.
Source: The Sun