- Terra's LUNA suffered a price drop in the marketwide correction in crypto.
- LUNA was hit hard as it is highly correlated with Bitcoin, and remains at risk of further downside if BTC fails to recover.
- Analysts believe LUNA price could struggle to make a recovery, revealing a bearish outlook.
Terra's LUNA price was hit hard by the bloodbath, wiping out millions in market capitalization despite massive reserves. The altcoin's trade volume has dropped 25.3% in the last two days.
High correlation with Bitcoin pushed LUNA price down
Terra’s LUNA price was hit by the broader crypto market correction, driving down the altcoin's price. Proponents identified three critical reasons for Terra's price drop. The first is that LUNA has remained highly correlated with Bitcoin, so when there is a bloodbath for BTC, LUNA price tends to suffer the same fate.
Secondly, despite $2 billion in its algorithmic stablecoin reserves, Terra was criticized by DeFi investors for lack of fiat-backed stablecoins, fiat or tangible assets backing UST. Further, LUNA's burn mechanism was questioned, as the altcoin serves as a volatility peg for UST.
Algorithmic stablecoins: case of $UST
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— DeFi Made Here (@DeFi_Made_Here) April 7, 2022