Steady As She Goes

    A common talking point on Twitter is that LUNA is resistant to broader market downturns when compared to other leading cryptocurrencies. Assess this claim, using data drawn from a time period of your choosing.

    Background

    As the name suggests, resistance is something that stops the price from moving further in a certain direction. It is the market that determines how the price of an asset moves, however, history has taught us that markets are not independent.

    A wide array of news and externalities could cause the price of an asset to change its trajectory. Hence, when investors are looking to invest in an asset, they tend to focus on ones that have the ability to resist broader market downturns.

    I believe one thing that Terra promised in its whitepaper was that its native currency LUNA was designed to not be cyclical in nature, thus reacting easily to broader market conditions. As to whether the LUNA has lived up to this expectation is the objective of this dashboard.

    Method of Analysis

    A calendar year is a long time in a volatile market like crypto, so the period of our investigation will span the past 12 months.

    LUNA price action will be compared to the price action Ether as the benchmark on one hand. On the other hand, the price action of Solana will be compared to that of Ether, to analyse if truly, LUNA is resistant to market downturns or not.

    LUNA vs Ether

    In decentralized finance, ETH is the standard, and it is also the second-largest cryptocurrency by market cap, hence, it is the embodiment of the full crypto market.

    Seasoned crypto investors evaluate the price of a crypto asset by comparing it to the price action of ETH, not fiat. ETH is now synonymous with digital money. ETH will be used as the benchmark.

    So the position is simple, to prove that LUNA is resistant to broader market downturns, we will have to observe from LUNA price action that when ETH showed a downtrend in price, LUNA showed some stability.

    Stability, in this context, will be defined as when a crypto asset does not show the same pattern as ETH, although there may be a zig-zag pattern.

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    SOL vs Ether

    Now, we compare SOL to ETH as a control experiment to justify LUNA's price action. SOL is chosen because it is an L1 alternative that is part of the same Cosmos ecosystem that LUNA is. So it is likely that, any shock that LUNA experiences, Solana will also experience the same. The chart below shows the price action of Solana vs. that of ETH.

    The chart above shows the price action of LUNA (blue) against the price action of ETH (orange).

    First Downturn

    The first downturn in the chart above occurs between May 12 - May 23, 2021. In that period, the price of ETH dropped from 4,217 to 2,042. In that same period, LUNA price went from 17 to 5. We can see that LUNA reacted but it was slow. From there LUNA did not react to other downturns.

    Second Downturn

    The second major downturn happened between September 3, 2021 - September 30, 2021. The price of ETH moved from 3,800 to 2,8000 within that period. We can see that LUNA showed some resistance in the first few days, but eventually felt the shock and dropped from 35 to 27. However, it took no time for LUNA to rebound again. Here, it is clear that LUNA showed resistance to a major market downturn.

    Third Downturn

    The third downturn happened recently, from early December 2021 to late January 2022. The price of ETH in that period moved from 4,400 to 2,400. Surprisingly, within the same period, the price LUNA moved from 40 to 80, and even charted at an all-time high of 100 midway. We can see from the chart that there was broader market pressure on LUNA but due to its skyrocketing price action, it was able to stabilize and not go lower than 40.

    Conclusion

    We have analysed the price actions of LUNA and SOL against the ETH benchmark. SOL was chosen as a control experiment to justify the price action of LUNA.

    It was found that in 2 out of 3 major market downturns, LUNA resisted by not falling below its starting price.

    In the most recent broader market downturn, LUNA broke its all-time high and doubled its price.

    SOL on the other hand did not show any resistance during the period of investigation as its price action almost mirrored that of ETH.

    With the above data and analysis, we can conclude that LUNA is partially resistant to broader market downturns. LUNA is able to absorb the downtrend shock, and slowly reacts but is able to quickly bounce back.

    In the chart above, SOL price action is in blue, while ETH price action is in orange. It is very obvious that both lines are mirrors of each other. With ETH being the benchmark here, SOL is the one Mirroring ETH actions. We cannot find one instance on the chart where there was a downturn and SOL resisted. SOL seems to just go with the flow.