What’s Behind LUNA’s Rally, Could Its Price Decouple From Bitcoin?

The price of LUNA moves on its own as the crypto market trends to the downside. Terra’s native cryptocurrency records a 6.4% profit in the last week, as BTC, ETH, and BNB, move sideways.

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At the time of writing, LUNA trades at $89.35 with a 4.8% loss in the last 24 hours. Despite recent losses, the cryptocurrency is quickly moving up the top 10 cryptos by market. Currently, it sits at the 7th position after pushing down Cardano (ADA), Solana (SOL), and Polkadot (DOT).

A report from economist Murray Rudd attempts to demonstrate a potential decoupling between Bitcoin (BTC) and Terra (LUNA). The number one cryptocurrency has a strong dominance over the entire market.

Therefore, it is common for altcoins to trend lower of higher, to move in tandem, with BTC’s price action. Recently, LUNA’s price has possible start to breakaway from this pattern, it sometimes tends to move on its own direction regardless of Bitcoin.

In order to support this thesis, Rudd examined the LUNA/BTC performance on different timeframes, and with different metrics. The economist represented this trading pair’s performance with different correlation zones.

As seen below, the green area represents a high correlation, while the red to white area represent periods when LUNA is uncorrelated (red) or shows a low correlation (white) with BTC. Based on this chart, Rudd said:

The degree of positive correlation appears to have dropped in duration and strength (i.e., more time spent in the weak positive correlation zone compared to strong correlation) from Aug 2021.

Furthermore, looking into the LUNA/BTC correlation for a 30-day period from January 2020 to January 2021 the economist found moments when the metric moved with more visibility.

For example, the chart below shows a decline in correlation for the trading pair during Q4, 2020, when BTC began it ascend towards new highs. Conversely, the chart indicates LUNA tends to move on its own, at least for this period, after long period of BTC’s price consolidation.

The Luna Decoupling, What It Means For Future Price Action

The economist also determined a first major period of uncorrelated prices for the LUNA/BTC trading pair during spring 2021. At that time, the crypto market reached a local top surpassing the $2 trillion in terms of capitalization.

Across 2021, Terra’s native asset will experience other uncorrelated or low correlation periods. When the crypto market started bouncing back from a long period of bearish price action, summer 2021, the LUNA/BTC trading pair “abruptly flipped from positive correlation to being uncorrelated”.

In September 2021 and December 2021, LUNA experience similar events. At that time, the ecosystem was discussing several major improvements to its mainnet, and the implementation of a burning mechanism for LUNA.

These updates and new mechanisms in the Terra ecosystem have been live for a short while. As time goes by, they could contribute with LUNA’s full decoupling from Bitcoin and the crypto market. Currently, Rudd believes this event may never happen, but he added:

LUNA price is not (and likely will not) completely decoupled from BTC price. This indicator cannot be used to predict future moves in correlation but it has definitively shown a significant decoupling of LUNA and Bitcoin prices since summer 2021.

Uncorrelated assets are potentially valuable for investors as they could become hedge against trends in the entire sector. In a bear market, investors could protect their wealth by jumping into a LUNA position or by using its stablecoin UST.

Related Reading | Terra (LUNA) Outperforms Popular Cryptos Ether, Dogecoin In The Past 24 Hours

The increase demand for this decentralized stablecoin, and its impact on the price of LUNA, is yet another reason that could further strengthen the long-term bull thesis for the Terra ecosystem.