People walk through the North American Bitcoin Conference held at the James L Knight Center on January 18, 2022 in Miami, Florida.
Joe Raedle | Getty Images
The Luna Foundation Guard has acquired $1.5 billion in bitcoin to bolster the reserves of its most popular stablecoin, known as U.S. Terra.
Stablecoins are cryptocurrencies that aim to peg their market value to a more stable asset. This latest transaction by the Luna Foundation Guard brings it closer to its goal of accumulating $10 billion of bitcoin to back the U.S. Terra stablecoin or UST.
Do Kwon, cofounder and CEO of Terraform Labs, the group that launched the Terra blockchain, said he expects to reach the $10 billion goal by the end of the third quarter.
The reserve now holds about $3.5 billion in bitcoin, which puts the UST Forex Reserve in the top 10 bitcoin holders in the world. It also holds north of $100 million in avalanche, another cryptocurrency.
In its latest bitcoin acquisition this week, the Luna Foundation Guard closed a $1 billion OTC swap with crypto prime broker Genesis for $1 billion worth of UST. It also bought $500 million of bitcoin from crypto hedge fund Three Arrows Capital.
U.S. Terra also joined the top 10 cryptocurrencies by market cap, according to CoinGecko.
“For the first time, you’re starting to see a pegged currency that is attempting to observe the bitcoin standard,” Kwon said. “It’s making a strong directional bet that keeping a lot of those foreign reserves in the form of a digital native currency is going to be a winning recipe.”
“The jury’s still out on the effectiveness on the subject, but I think it is symbolic in the sense now that we live in a time where there’s excess money printing across the board and when monetary policies highly politicized that there are citizens that are self-organizing to try to bring systems back to a sounder paradigm of money,” Kwon added.
On Thursday, the price of bitcoin declined 9.1%. Luna, the governance token of the Terra blockchain, slid 7.3%. The moves occurred alongside a broad and sharp decline for stocks.
The last time the Luna Foundation Guard bought $1 billion in bitcoin, bitcoin topped $48,000 for the first time since Dec. 31 and luna hit an all-time high.
“The corporate buying of bitcoin can greatly influence the value of the currency and the space itself,” said Joel Kruger, market strategist for LMAX Group. “With more demand from institutions comes added liquidity and longer-term interest, while validating the asset class at the same time.”
In addition to padding its reserves, the parties in this latest deal are on a mission to bridge a gap between traditional finance and crypto native platforms and protocols.
“There’s traditionally been this gulf between where crypto native market participants are participating and Terra is on the far end of that, it’s designed by crypto-native people for crypto-native people,” said Josh Lim, head of derivatives at Genesis Global Trading.
“There’s another corner of the market that’s mostly institutional,” he added. “They’re still waiting on things like buying bitcoin, inserting it in cold storage, or doing CME futures on bitcoin. They’re very disjointed parts of the market and Genesis is trying to bridge that gap and allow more institutional capital to come into the competitive world.”
Genesis has one of the largest wholesale lending businesses in crypto. By participating in this transaction with the Luna Foundation Guard, the company is building its reserves in luna and UST and using them to interact with their borrowing counterparties, who may be looking to get access to the crypto ecosystem in a risk-neutral way.
It also enables Genesis to distribute some of the Terra assets to counterparties that may have difficulty accepting those assets on an exchange.
“Because we’re more of an institutional counterparty that they’re familiar with – trading with more on the spot, OTC side of things – we’re able to source this in large size and then parcel it out to people,” Lim said.