Following the announcement made by Terra in February that it would partially back its UST stablecoin with bitcoin (BTC), the market was waiting for clues that Terra would indeed follow through on its promise.
An indication that the stablecoin protocol is indeed sticking to its plan emerged this week, when a wallet in all likelihood owned by Terra made a $125 million trade on the Binance crypto exchange on March 21.
Another trade of equivalent value was spotted by crypto trader Cantering Clark:
Furthermore, Bitcoin Magazine has affirmed that Terra had already bought BTC 6,000 for 250m USD. Cryptonews.com contacted Terra for comment.
The move to raise initial capital of $1 billion to buy a bitcoin reserve for UST has been backed by several high-profile investors, including crypto infrastructure provider Jump Crypto and the crypto-focused hedge fund Three Arrows Capital.
So far, UST has been backed by Terra’s native token, LUNA, through an algorithm that adjusts reserves based on market prices. At the time of writing, UST is the fourth largest stablecoin by market capitalization, according to Coingecko.com.
A strategy to buy $10 billion of BTC
After Terra’s initial announcement, Terra’s founder, Do Kwonsaid on Twitter that more than US$10 billion worth of BTC would eventually be purchased in order to support the stablecoin.
“This is not a 10 billion operation to be done today – as the UST money supply grows, some of the seigniorage will be used to build reserves of BTC linked to the Terra blockchain. We We have 3 billion funds available to start this reserve, but the technical infrastructure (bridges, etc.) is not yet ready”, has Explain Do Kwon in response to a question from the CEO of Blockstream, Adam Backon the origin of the 10 billion dollars.
For Terra’s native LUNA token, the news that UST will be backed by a combination of LUNA and BTC rather than just LUNA appears to have been a bullish catalyst, with the token (as of Thursday 13:05 UTC) rising by 86% since announcement.
Price development of LUNA over the last 90 days:
The more important question, however, is how such a buying spree might impact the price of BTC in the future.
Terra’s plan to build a large reserve of BTC is already compared to that of MicroStrategythe firm of Michael Saylor. The American company has accumulated 125,051 BTC ($5.3 billion) so far, making it one of the largest bitcoin holders in the world. Despite this, the announcements of acquisition by MicroStrategy remained largely without major impact on the market.
Since Terra’s initial announcement on February 22, Bitcoin has been trading higher, and it is currently up around 16% since the announcement. Notably, gains were also seen on the day of the announcement, when BTC rose more than 3%.
As traders know, however, it is difficult to tell if the price changes have anything to do with this release or not. All we know for now is that the more BTC bought and locked up, the less there will be for the rest of us in the stock markets.
Perhaps the best take on the situation so far was given by the developer Rajarshi Maitra on Twitter, when asked how bitcoiners can come to terms with the fact that “shitcoiners are making the biggest bitcoin buy in history.”
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