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Avalanche drops 30% on fears that Terra’s LFG may dump its AVAX holdings now

Avalanche (AVAX) is paying the price for being one of the collateral holding native stablecoin TerraUSD (UST) pegged to the US dollar.

Is a big AVAX crash coming?

AVAX price fell nearly 30% to $32.50 on May 11, its lowest level since September 2021. Its huge intraday decline coincided with the UST falling to 23 cents, which affected its stablecoin status among traders and investors.

The dollar de-pegging incident occurred despite the fact that the Luna Foundation Guard, a Singapore-based non-profit organization backed by TerraLabs, emptied its cryptocurrency reserves to prop up the UST’s parity with the US national currency. The company currently owns 1.97 million AVAX, valued at about $74.75 million, according to data shared by analyst CrypOrca.

Reserves of the Luna Foundation Guard. Source: CryptoOrca

A similar sentiment can be seen in the market for LUNA, another cryptocurrency that LFG holds as an asset to support UST. The value of LUNA fell 85% on May 11, its worst daily performance.

Bearish Technicals for AVAX

Avalanche bulls attempted to save AVAX from dipping below a key support line near $36, which coincides with the 0.238 line of the Fibonacci retracement chart that runs from the $0.29 low to $0.29 high. $34.52.

Their efforts helped the token recover nearly 22% of its May 11 losses, with its price rallying from $32.50 to over $39.50.

However, a full-fledged bullish reversal seems unlikely as AVAX’s upward swing faces one strong resistance after another.

Initially, the stock is looking for a rally towards a support turned resistance zone, marked as the accumulation zone on the chart below. The upside target coincides with the 0.618 Fib line around $67.

Daily chart of the AVAX/USD pair. Source: TradingView

A decisive close above the zone could see AVAX reach its 50-day EMA (50-EMA; the red wave) near $69 and its 200-day EMA (the blue wave) around $74 as the next resistors.

But AVAX is also facing headwinds from a higher interest rate environment that has dampened buying sentiment across the cryptocurrency market.

This could push the AVAX/USD pair back to $36 as support for a breakout move, which risks driving the price towards $20, a major price floor in February-April 2021.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.

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