Terra off to new record high as LUNA price outperforms market with 30% rebound in 3 days

Terra (LUNA) resumed its upward march this week as its price per token rebounded by more than 30% three days.

LUNA’s price almost reached $100 on March 9 following a 15% intraday rally, coming near its record high of $106 from December 2021. At its week-to-date (WTD) low, the Terra token was trading at $75.60.

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LUNA/USD daily price chart. Source: TradingView

Over 120 million LUNA burned already

The recent bout of buying in the Terra market appeared in part due to similar recoveries elsewhere in the crypto market. For instance, Terra’s leading competitor in the smart contracts space, Ethereum, saw Ether (ETH) rising by 13.50% in the same period. Similarly, Bitcoin (BTC) also jumped by over 14% from its WTD low below $37,200.

Arthur Cheong, the founder of Defiance Capital, hinted on Wednesday that LUNA price increased because of Terra’s ability to capture at least $1 trillion or more worth of decentralized stablecoin market space via its native U.S. dollar-pegged token, TerraUSD (UST).

Notably, the supply of UST tokens reached over 1.4 billion on Wednesday, its highest level to date, according to data provided by Smart Stake. At the same time, the Terra protocol removed 120 million LUNA tokens from the supply permanently.

To recap: LUNA maintains UST’s dollar peg. So, if the stablecoin’s price rises above $1, the Terra protocol burns LUNA and mints more stablecoins. Similarly, if UST’s price falls below $1, LUNA’s valuation declines in tandem due to a slowdown in the burning mechanism. 

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UST versus LUNA supply in the past 30 days. Source: Smart Stake

Thus, an increasing UST supply likely boosted LUNA’s price rally in addition to the broader recovery in the crypto market.

Terra TVL hits all-time high

LUNA’s gains also appeared against the backdrop of more capital flowing into the Terra ecosystem.

The total value locked (TVL) inside the Terra protocol surged from nearly $18 billion at the beginning of this year to $25.58 billion as of March 9, its highest level to date. This includes a spike in total locked LUNA tokens from 215.80 million to 298.89 million in the same period.

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Terra total value locked as of March 9, 2022. Source: Defi Llama

Terra also emerged as the highest staked asset among all the cryptocurrencies on a 24-hour adjusted timeframe, with over $35.75 million worth of LUNA tokens now locked across multiple platforms, according to data resource Stakingrewards.

What’s next for LUNA price?

While LUNA looks poised to establish a new record high this week, its longer-timeframe technical indicators suggest the possibility of downside risk.

Related: Ethereum’s TVL dominance drops to 55% as Bloomberg analyst paints $1.7K bearish target

For instance, LUNA/USD has shown a clear bearish divergence between its rising prices and falling momentum, as indicated by its weekly relative strength index (RSI) — forming lower highs since the beginning of 2021 — in the chart below.

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LUNA/USD weekly price chart. Source: TradingView

Similarly, the volumes attached with LUNA’s recent weekly price rally also appeared weaker, further suggesting that the underlying upside momentum could stall. If it happens, LUNA will risk undergoing a sharp pullback to test its exponential moving averages (EMA), primarily the 20-week EMA (~$64) and the 50-week EMA (~38), as supports.

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