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LUNA suffers free fall: How low will this crypto token go?


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An illustration representing Terra's ecosystem.
LUNA fell bellow $1 in early European afternoon - well below its record high of $119. – Photo: ShutterStock.

LUNA could become worthless if it does not receive a big enough bailout through a change in the market, say cryptocurrency market players.

Just this week – on 10 May – LUNA was a top 10 digital asset, after going from strength to strength over the past year. But the coin has been in a freefall since its sister token, TerraUSD (UST), lost its peg to the US dollar. At the time of writing on 12 May, LUNA's value had sunk to 35th in the rankings.

“$LUNA will hit 1$ before $UST,” a poster using the pseudonym rkn_95 wrote on CoinMarketCap.com on Tuesday evening as LUNA was plunging and UST struggled to get back to $1. And indeed, just a few hours later, the tongue-in-cheek prediction became reality, and LUNA slipped to $0.8384 in early Wednesday afternoon trading in Europe.

LUNA to USD

Just a week ago, such a forecast would have appeared highly unlikely. At the time, LUNA was worth $87. UST is a stablecoin, which means that it is backed by a reserve of the asset that it represents – often the US dollar. Usually, a stablecoin's value will not fluctuate greatly. But at the end of last week, UST depegged from the dollar, prompting a sell-off which also spilled into LUNA.

LUNA crashed, erasing most of its value, and forced the team behind Terra to raise money for reserves by selling a recently acquired BTC stash.

Now, market watchers are warning about market volatility, with some saying that LUNA could drop to $0. 

“The way it's designed, without a big enough bailout $LUNA should go to $0," Chris Burniske, a partner at venture capital firm Place Holder, wrote on Twitter. 

Others view LUNA's plunge as a trading opportunity.

LUNA/USD

2.55 Price
0.000% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee -0.0500%
Overnight fee time 21:00 (UTC)
Spread 0.0509

XRP/USD

0.48 Price
+0.160% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 21:00 (UTC)
Spread 0.00600

BTS/BTC

0.00 Price
0.000% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 21:00 (UTC)
Spread 0.00000002

BTC/USD

20,123.75 Price
-1.260% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 21:00 (UTC)
Spread 60.00

“Buying $LUNA now is the best risk:reward trade I’ve seen in a long time," crypto trader Ran NeuNer wrote on Twitter. "There is a chance that it goes to zero but if it doesn’t you may pick up tokens at crazy prices. It’s an all or nothing trade but I think a smart one!”

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TRON to US Dollar

Traders have attributed UST's and LUNA's drop to broader negartive crypto market sentiment. Egor Volotkovich, executrive-director at blockchain company EVODeFi, who specializes in decentralized finance (DeFi) and crypto payments,  said LUNA's freefall was predictable after rhe coin experienced extreme volatility.

The question now is: How much further will LUNA fall and how close will it get to zero?

Anto Paroian, chief operating officer at crypto hedge fund ARK36, added that LUNA investors are not the only ones who will feel pricing pain.

“Without a doubt, UST losing its peg will be seen as one of the defining moments of the current crypto market cycle. Unfortunately, the fallout from this situation goes beyond the material losses sustained by LUNA investors,” he said. “The depegging will likely result in a substantial regulatory risk – if not for the whole crypto space, then certainly for the stablecoins market.”

After falling below $1 in European early afternoon trading, LUNA rebounded and rode a roller coaster, surpassing $4 in a matter of hours. It later slid back to $2.20, dropped below $1 and then rose above $1.

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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