The Crypto Winter is over
Credit: MedianMa

The market has exploded out of it’s winter slumber! What’s driving it?

March 29, 2022


We’ve talked a lot about Terra (LUNA). UST, LUNA’s native stablecoin offers some of the best non-risky yields (19.5%) for a stablecoin asset in all of crypto. In times of market uncertainty LUNA and UST become safe havens for cryptocurrency investors. We’ve seen LUNA reach the $100 barrier twice in recent months. But- this isn’t what’s driving the market.

A stablecoin lives up to its name by always being worth $1. Different coins do this in different ways. Stablecoins maintain a one to one (at least) ratio with fiat or other assets and derive their price from that. UST is a bit different as it is an algorithmic stablecoin. The circulating supply of UST is increased or decreased via smart contracts to keep the available supply matched with the backing. If there were to be a rapid, short term demand in the redemption of UST, there could come a time where UST wouldn’t have the assets to cover it and the UST token could lose its peg.

With the popularity of UST increasing rapidly in recent months, The Luna Foundation Guard (LFG- the group that builds LUNA) undertook a powerful approach to help increase the resiliency of the token: LFG is buying $10 billion dollars worth of Bitcoin to help back UST. There’s an interesting wrinkle here, however. The amount of physically available Bitcoin is rapidly dwindling.

The end of the crypto winter?
Data Courtesy of CoinGlass

Only 21 million Bitcoin will ever be in existence. To buy and sell Bitcoin (and other currencies) requires liquidity. Instead of buying or selling directly with someone, exchanges (both centralized and decentralized) maintain liquidity pools. Many centralized exchanges, like Binance, CoinBase, and others, purchase large quantities of popular tokens to provide liquidity allowing people to perform transactions. When liquidity drops prices increase. When liquidity increases, prices decrease. As shown, there really aren’t that many Bitcoin available to be purchased anymore. After some detective work, it was discovered that LFG had bought a significant amount of Bitcoin, which they confirmed.

how is the crypto winter ending?

Cryptocurrency wallets are all viewable on the blockchain. Several users noticed that Binance, one of the world’s largest exchanges, had shown a significant amount of transactions going to one address, shown above. This address has been confirmed to belong to LFG. After the data above was shown, additional Bitcoin was purchased by LFG, bringing their owned total to almost 25,000. LFG started purchasing Bitcoin back in January (albeit in smaller quantities) but has made several large purchases over the last few weeks. It’s not just LFG buying Bitcoin now, though.

when the crypto winter ends
Credit: CoinGlass

People move Bitcoin to and from Centralized Exchanges all the time. These exchanges are the easiest ways to convert from fiat to crypto and vice versa. In the last 30 days the top 6 exchanges in terms of Bitcoin held have seen their balances drop by over 52,800 Bitcoin, or $2.5billion. While LFG’s purchases have made news, they aren’t the only ones buying. We’ve covered a lot about how Bitcoin still moves markets. The term “A rising tide lifts all ships” applies in these cases.

where the crypto winter ends
Data Courtesy of LiveCoinWatch

When Bitcoin moves, everything else follows. Once that momentum gets going, if it maintains, Alt Coins and many other projects can sky rocket in price. We’re seeing some significant recoveries from the January market abyss and those of us that have DCA’d through this are likely looking at significant profits. Cryptocurrency always moves in waves and cycles. If this one continues, we could be in for a great spring and summer across the space and finally the end to a long crypto winter. The key to whether it sustains or not is added momentum. The war in Ukraine has highlighted some of the significant benefits that decentralized technologies like Bitcoin can provide. Adoption at the institutional level continues to increase. Fewer and fewer Bitcoin exist in liquidity pools. We’re heading for a supply shock sooner or later. When it happens, hang on tight.

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