As bitcoin price timidly tries to recover, this news should delight the bulls even more. The Luna Foundation purchased 11,700 bitcoins for its UST reserve fund.
During the month of February, the Luna Foundation Guard (LFG) announced that it would set up a bitcoin reserve fund to support its algorithmic stablecoin, UST. At first, Do Kwon, the founder of Terra Luna announced that the Luna foundation was going to buy the equivalent of one billion dollars in bitcoin. But, recently it became known that Terra's bitcoin reserve ambitions are even greater as it plans to acquire $10 billion in BTC to support the UST.
The LFG began by materializing its bitcoin acquisition objectives. During this week, it purchased 11,700 bitcoins for an amount of around $523 million. In total, the LFG would have 24,954.95 bitcoins or approximately $1.1 billion in its reserve fund according to what Bitcoin Magazine reported and confirmed by Do Kwon.
Why This Fund Reserves In Bitcoin?
Terra Labs' stablecoin is coming under fire for its reliance on LUNA tokens. Last year we even saw the price of the UST reach a peak of up to $1.09 and a low of $0.85. This rather surprising fluctuation is linked to the economic health of the crypto currency which serves as a reserve for the UST.
To hit USTs, Terra users must burn LUNA, and vice versa. Since UST is an algorithmic stablecoin, it runs the risk of experiencing a “death spiral” if not backed by sufficient collateral. As a result, stablecoins backed by a fiat currency such as Tether or USDC seem more reliable in the eyes of users than UST despite the Terra ecosystem is quite promising. Terra currently ranks second among projects by TVL. Everything to illustrate the confidence that investors have in the blockchain.
However, backing the stablecoin to the largest cryptocurrency in the market which many people believe has huge safe haven potential in the long term will boost user confidence in the UST.
What Were The Impacts On The Price Of BTC And LUNA
Long before this news, bitcoin had initiated a rebound allowing it to consolidate above $40,000. It even allowed itself to break above the crucial resistance bar of 45,000 before falling back towards $44,000. But, with the LFG continuing to purchase BTC tokens, this could only prove beneficial for the premier cryptocurrency.
As for LUNA, the effect was much more direct. The price even allowed itself to approach the $100 mark after an explosion of 15% during the week. On a monthly basis, LUNA's growth stands at 39.6% according to data provided by Coingecko.