LUNA was one of the best-performing financial assets in February amid geopolitical conflicts and their negative impact on the crypto market.
LUNA separates from the crypto market
LUNA price surged more than 75% to reach $91.5 at the end of the month (UTC). For comparison, the percentage performance of other top tokens like Bitcoin and ETH was only about 12.25% and 9%, respectively, over the same period.
Weekly price charts of LUNA/USD, BTC/USD and ETH/USD | Source: TradingView
Interestingly, most of LUNA’s February gains occurred on the last day of the month. The price surged 26% on Feb. 28, in part due to similar bullish moves from other coins in the crypto market. For example, BTC and ETH are up 14.5% and more than 11.5%, respectively, on the same day.
While still positive at 0.09, LUNA’s correlation with Bitcoin has recently fallen sharply after hitting 0.81 on Feb. 21, according to data from TradingView. A correlation of 1 means the two assets are in close proximity, while 0 indicates their prices move independently.
LUNA correlation coefficient on the daily chart | Source: TradingView
LUNA/BTC is also showing a growing valuation against the top cryptocurrency.
Notably, the pair surged more than 56% to 21,171 satoshis in February, suggesting traders sought to hedge Terra’s token as Bitcoin’s correlation with the bear market escalated, hitting 0.7 earlier this year.
Bitcoin correlation with stocks since March 2021 | Source: Bloomberg
As for why traders seem to see LUNA primarily as a temporary safe haven, the answer may lie in Terra’s token economy.
29 million LUNA destroyed
Accordingly Data from analytics platform Smart Stake, the Terra Protocol recently burned 29 million LUNA worth $2.57 billion. That comes as supply of TerraUSD (UST), a LUNA-backed stablecoin, surged from around 11.26 million on Feb. 1 to nearly 12.92 million on Feb. 28, a short-term spike from 14.75 % means.
Total offer from LUNA and UST in February 2022 | Source: SmartStake
Traders see the growing supply of UST as a bullish catalyst for LUNA, mainly due to the UST LUNA token model. In particular, Terra preserves the USD rate of the UST through an elastic monetary policy. So when the value of UST exceeds $1, Terra encourages users to burn LUNA and mint UST.
But when the supply of UST decreases, LUNA’s valuation goes down as the combustion mechanism slows down. In summary, LUNA’s valuation tends to increase with the supply of UST.
On February 22nd, Luna Foundation Guard (LFG) – a non-profit organization that supports the Terra Blockchain ecosystem notification raised $1 billion in a LUNA token sale led by Three Arrows Capital – the venture capital firm led by Ethereum skeptic Su Zhu and Jump Crypto – the trading team known for backing the Solana’s Wormhole Bridge platform .
LFG announced that it will use the proceeds to build a “UST forex reserve,” raising the prospect of boosting the stablecoin’s supply with an additional $1 billion in LUNA tokens.
LUNA’s price is up almost 90% since LFG made this announcement. In contrast, the total market cap of all cryptocurrencies increased by just 13% over the same period, proving that traders have flocked to Terra Market.
What does LUNA expect in the near future?
The technical outlook for LUNA appears to be tilted to the upside due to the ongoing bull flag breakout.
A bull flag is a bullish continuation pattern that occurs when price consolidates down within a descending channel after a strong rally. It eventually broke out of the channel range to the upside, with an ideal target price at a length equal to the magnitude of the upside move before the bull flag formation.
LUNA appears to have entered the final phase of a bullish flag setup as illustrated in the chart below. It is currently heading towards $120 an all-time high if reached.
3-day LUNA price chart and bullish flag setup | Source: TradingView
On the other hand, LUNA’s volume is looking weak on the 3-day chart, showing that traders are not too confident in the bullish move for now. Volume records also show little historical activity above $70.
In addition, the daily Relative Strength Indicator (RSI) is also showing an overbought alert, suggesting that the price could correct in the coming sessions.
Daily LUNA price chart and RSI | Source: TradingView
Longer term, however, LUNA’s path of least resistance continues to the upside, with an annual performance against the US dollar of more than 1.639% at press time.
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