Is Terra’s Buying Enough for BTC to Go Higher?
Plus: USDN’s De-pegging
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This week we go deep into Terra’s Bitcoin accumulation, tracking its buying activity and the impact it’s caused on a market that also appears to be seeing large sellers. We assess this contrast and provide key levels to watch out for Bitcoin as well as relevant potential catalysts.
We then dive into the USDN stablecoin, its recent 25% crash and the underlying conditions behind it.
Weekly Fees — Sum of total fees spent to use a particular blockchain in a week. This tracks the willingness to spend and demand to use Bitcoin or Ether.
- Bitcoin fees increased to over $4 million, reaching the highest weekly total since the beginning of 2022
- Ethereum network fees also picked up to $170M, the highest level in two months
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges over the past seven days. Crypto going into exchanges may signal selling pressure, while withdrawals potentially point to accumulation.
- Bitcoin saw mild exchange inflows of $60 million, down from last week’s $200 million
- Ethereum recorded $888 million in net outflows from centralized exchanges, with over $5 billion leaving exchanges throughout the last four weeks
Is Terra’s Accumulation Enough to Sustain BTC’s Price?
HiIn the last newsletter we covered how crypto’s correlation with stocks was back on the rise. This week we observed this in play as markets reacted negatively to news of a likely 50-basis points interest rate increase and quantitative tightening in the upcoming federal reserve meeting. Diving into on-chain data, it appears that large holders have been particularly risk-averse throughout this macro uncertainty.
Large Addresses Decrease Positions — the aggregate Bitcoin balance held by addresses with 1k to 10k BTC dropped to the lowest in three months
- Addresses holding between 1k to 10k BTC are the largest holders of Bitcoin, with over a quarter of supply held by them, making their buying/selling activity especially relevant
- On the other hand, the balance held by addresses with smaller balances has been on an up-trend, with the group holding between 0.001 BTC and 0.01 BTC growing the fastest over the past 30 days
- Groups holding over 100 BTC have been mostly decreasing their positions, with the key exception being those that hold between 10k and 100k BTC
Here Terra’s Luna Foundation Guard (LFG) has been one of the most avid Bitcoin buyers, acquiring over 26k BTC over the last 30 days to be used as backstop for the UST algorithmic stablecoin.
Over $1.5 billion — Terra’s aggressive buying spree has led them to own over nine figures worth of Bitcoin
- Optimism surrounding Terra’s announcement to acquire $3 billion of Bitcoin helped push BTC’s price higher throughout late March
- The LFG has purchased just over 1,500 BTC (~$67M) per day since it announced its plans on March 21 based on inflows into their address
Put Into Context — Terra’s investments may seem large in nominal terms, but make up a small portion of Bitcoin’s daily volume
- The $67M average inflow into Terra’s address represents just 0.27% of Bitcoin’s average daily trading volume over the past two weeks based on Coingecko data
- At it’s highest, on April 6 the LFG added $223M worth of Bitcoin, making up 0.88% of that day’s trading volume
This suggests that impact in Bitcoin’s price throughout late March is likely more due to the psychological factor of having a large whale such as Terra avidly accumulating deterring sellers, rather than the actual buying propelling the rise.
Key Price Levels — Bitcoin was unable to reach $50k thus far since recovering and faces substantial concentration of selling pressure just below this level
- 2.2 million addresses previously bought 1M BTC at approximately $48,000, making this an area of high trading activity acting as resistance
- On the support side, buying activity has been concentrated around the $40,000 level, where 820k BTC was previously acquired, making this the price to watch out for
Potential Catalysts — Aside from Terra’s buying activity, Bitcoin also saw a wave of positive news throughout the Bitcoin Miami conference
- Jack Mallers announced Shopify merchants will be able to opt-in to receive payments in Bitcoin through the lightning network
- Regions in Honduras and Portugal will support Bitcoin as legal tender
- Robinhood released their crypto wallet to 2 million users
USDN’s De-pegging
From one algorithmic stablecoin to another, this week we saw USDN lose its peg by over 20% as UST reached a new all-time high market cap of $16.7 billion. Despite the contrasting outcomes, USDN and UST are not too disimilar
- Both require to use layer 1 tokens (LUNA for UST and WAVES for USDN) in order to mint them
- These tokens partially back them, following a seigniorage model
- Waves and Terra both boast lending protocols with remarkably high rates on their stablecoins, 15% for USDN on Vires and 19.5% for UST on Anchor
However, this week a viral thread alleging the Waves team was artificially engineering unsustainable price growth led to many concerned investors selling USDN far below its intended 1-to-1 peg with the dollar.
3/4 of a Stablecoin — The price of USDN dropped to a low of $0.75 a few days after the news was exposed
- The Waves team appeared to blame Alameda being behind the de-pegging, while they suggested their delta-neutral position reaping in the divergence between funding rates and borrow rates
- Looking on-chain their seems to have been economic imbalances exacerbating the de-pegging of USDN
Yield Farmers Withdraw — as the allegations on USDN came out, it appeared that depositors of the USDN Curve pool began exiting
- The Curve pool which is supposed to be 50% USDN and 50% 3Crv (USDC, USDT and DAI), became over 90% USDN
- Withdrawals led to lower liquidity, exacerbating the USDN crash
The USDN peg seems to have since bounced back to $0.97 at the time of writing. However, the incident highlights the risks and weaknesses algorithmic stablecoins can be susceptible to.
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