Terra (LUNA) Slumps 11%, Why Are Top Altcoins Tumbling?

Terra (LUNA) led a rout in altcoins on Saturday as worsening sentiment saw investors lock-in recent gains in the market. Most major altcoins also saw sharp losses for the week.

LUNA fell 11% to an over one-week low of $94.13. It was trading nearly 27% below a record high hit earlier in the week, and was down nearly 13% over the past seven days.

Most other altcoins, including Cardano (ADA), Solana (SOL) and Ripple (XRP) shed between 3% to 10%. A bulk of the declines were likely due to profit taking, as investors sold at the end of a stellar crypto rally over the past two weeks.

Concerns over rising inflation and aggressive monetary tightening by the Federal Reserve also dented broader market sentiment. Bitcoin and Ethereum fell about 2.6% and 1.6%, respectively.

LUNA hit by concerns over sustainability

But LUNA saw the biggest losses among its peers, amid growing concerns over the long-term sustainability of its stablecoin, TerraUSD (UST).

A host of crypto commentators pointed out that UST’s concentration in one protocol, Anchor, makes it less viable as a decentralized stablecoin. The use of LUNA to build to build Terra’s stablecoin reserves was also criticized, as was using a volatile currency such as Bitcoin in the reserves.

Commentator @JackNiewold alleged that Terra was not completely burning LUNA to UST, but using a portion of the supposedly burn tokens to buy BTC. The move, if true, would result in inflationary pressure on the token.

While Terra founder Do Kown refuted the allegations, LUNA’s outsized losses may suggest that traders see some merit in the FUD.

Recent losses also cost LUNA its spot as the sixth-largest crypto by market capitalization, with the token now trading in the ninth spot, at $33.4 billion.

Will altcoins rally further?

Altcoins were the star performers in crypto over the past few weeks, largely outpacing their bigger peers in price action. Their strong gains had also seen Bitcoin dominance come close to falling below 40%.

While the past week has been rough for most altcoins, they are likely to see further gains. Institutional interest has been picking up in the tokens over the past weeks, and will likely drive them higher.