Terra's Bitcoin buying spree raises concerns, spelling trouble for LUNA price

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

Thread pic.twitter.com/wx9Q4unjFW
— DeFi Made Here (@DeFi_Made_Here) April 7, 2022

In the recent pullback, millions were wiped out of LUNA's market capitalization; it posted double-digit losses over the past week. This was the highest drop among the top 10 cryptocurrencies.

The on-chain activity and trade volume for the altcoin plummeted from three billion to 2.24 billion, a 25% fall within the past two days.

LUNA trade volume takes a hit

LUNA's accumulation of Bitcoin has raised flags among investors since the altcoin failed to include fiat-backed stablecoins and tangible assets to reduce volatility in UST. The addition of Bitcoin to Luna Foundation Guard's reserves failed to protect LUNA price from posting massive losses overnight.

Analysts have evaluated the LUNA price trend and observed the velocity to the downside is high. @ShardiB2, a pseudonymous crypto analyst, believes LUNA is oversold on most time frames, and the altcoin is bouncing off support. The analyst remains bearish on LUNA price.

$LUNA

Ugh.. the velocity to the downside here from the highs was awful... daily trend now flipping red after this getting oversold on most time frames and bouncing off support this morn... again, stay guarded pic.twitter.com/9AgzzSW9jK
— Don't Follow ShardETH B If You Hate Money $ (@ShardiB2) April 11, 2022

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