Terra LUNA hits new all-time high after 100% rebound from 2022 lows — Correction ahead?

LUNA price chart technicals are hinting at a possible 50% price drop in the coming weeks, however.

Terra (LUNA) rose to its best level to date on March 29 as the Luna Foundation Guard’s (LFG) plans to increase its Bitcoin (BTC) reserves eased anxiety about the impact of an increasingly hawkish Federal Reserve and the ongoing Ukraine-Russia war on crypto markets.

LUNA price hits new record high above $106

LUNA’s price breached above the previous record high of $106.29 by minuscule margins, reversing the losses incurred during the selloff between December 2021 and January 2022.

The latest price rally pushed Terra token’s net capitalization crossed $37.17 billion, now making up 1.76% of the entire crypto market, compared to 0.39% at the beginning of this year.

LUNA market dominance is increasing steadily in 2022. Source: TradingView

Terra does a MicroStrategy

Bitcoin wallets associated with LFG, a nonprofit spearheaded by Terra’s creator Do Kwon, saw an inflow of 2,830 BTC worth $135 million on Monday. The influx occurred as a part of LFG’s Bitcoin accumulation spree following a community proposal that suggested to use BTC as collateral to “provide deep liquidity at a discount when the UST peg is under pressure.”

UST is the Terra’s decentralized stablecoin otherwise collateralized by the blockchain’s native cryptocurrency LUNA. As such, Terra’s economy supports the burning of LUNA tokens to mint more UST units as a strategy to maintain the latter’s dollar-peg.

LFG has outlined plans to boost its Bitcoin reserves to $3 billion with a long-term strategy to swell the pool to $10 billion. In a theory, that could lead to an increase in demand for UST, thereby forcing more LUNA tokens out of active supply permanently. 

UST net supply. Source: Smart Stake

LUNA faces immediate selloff risks

From a technical perspective, LUNA faces the prospects of undergoing a 50% price correction in the coming weeks, though this may not necessarily hurt the bullish long-term outlook.

In detail, the Terra token has been consolidating inside what appears to be an ascending channel, a continuation pattern that appears after the price fluctuates inside a range defined by an upper horizontal and a lower rising trendline.

Related: Terraform Labs donates $1.1B for Luna Foundation Guard‘s reserves

In a perfect scenario, the setup resolves with a breakout in the direction of the asset’s previous trend, rising by as much as the maximum distance between the channel’s upper and lower trendline. As a result, LUNA’s price could rise toward $425 in 2022, as shown in the chart below.

LUNA/USD daily price chart featuring “ascending triangle” setup. Source: TradingView

But the upside outlook needs further confirmation, beginning with a decisive breakout above the triangle’s upper trendline. If it does not come, LUNA’s prospects of a sharp pullback towards the lower trendlines appear higher, which means a price drop towards the $50-$60 range, down around 50% from today’s price. 

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