Terra Is Becoming the New MicroStrategy
Terra is buying tons of Bitcoin
The crypto market has been having an unusually good few weeks, considering that there is a war in Europe between two countries. So why is that?
On the surface, the rally could be partially explained by peace efforts between the Ukrainians and Russians. But when you look a little closer, it's clear that Terra, the company behind LUNA, is the other reason for all the green. How is that possible?
The company is buying tons of Bitcoin to stockpile for future costs of their blockchain, which is in the Top 10. Also, there has been a significant increase in whales buying LUNA, since the Terra blockchain is responsible for minting one of the largest stablecoins, known as TerraUSD or UST.
However, Terra CEO Do Kwon denies that their company is the reason behind Bitcoin's recent rally. In a Twitter thread, Kwon explained that if Terra was able to move Bitcoin, it would not be a great reserve currency. While there's admittedly some positive news in Ukraine, this latest rally started roughly around the time when Terra began aggressively purchasing Bitcoin.
Terra is seeing crazy investor interest, with YouTubers like InvestAnswers making videos of LUNA theoretically hitting $80,000 some day.
Why are they stockpiling Bitcoin?
The specific entity within Terra responsible for this Bitcoin buying is the Luna Foundation Guard. This organization is akin to the normal foundations for other coins typically found in Switzerland. As such, the Luna Foundation Guard is buying Bitcoin to back the price of Luna and ensure the stability of UST.
By purchasing large numbers of Bitcoin and stockpiling it, The Luna Foundation Guard is allowing UST to be backed by Bitcoin. In other words, the BTC is acting as a collateral for the UST stablecoin.
The only other entity that compares to Terra than Satoshi Nakamoto himself, who famously mined 500k to 1m Bitcoin, is MicroStrategy.
Led by CEO and popular Bitcoin influencer Michael Saylor, MicroStrategy is an American tech company that sells enterprise analytics software. They happen to own over a whopping 125,000 BTC. Terra actually falls short at around 31k BTC, but that will change over time, since Terra aims to buy a total of $10.5 billion of BTC. That's almost twice as much as the current market value of MicroStrategy's position!
Bitcoin and Luna price
Even though LUNA is burned to mint UST, there's a chance many problems could occur. Terra is buying Bitcoin as a cushion just in case.
As a result of all the Bitcoin buying, Terra and Bitcoin both have seen fairly large price increases, with BTC hovering around $45k and LUNA hovering around $100. Both are up considerably from their recent lows.