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Terra Founders to Buy Staggering $2.5 Billion in Bitcoin

In early March 2022, Do Kwon, the co-founder of Terra, sent a strong signal that the company was planning to purchase $2.5 billion in bitcoin. The intention was made clear on Twitter.

The co-founder of Terra made a series of announcements on the platform, with the most noticeable being the inclusion of new token mechanics. The token mechanics as explained by Kwon take into consideration a form of bitcoin present in the Terra ecosystem.

Now it appears the first purchases of BTC have been made and both BTC and Luna are pumping.

An image of Bitcoin

Kwon noted that the idea behind the new token mechanics was to bring a form of tokenized bitcoin to the Terra ecosystem in the most decentralized form possible. Kwon also explained that the inclusion of bitcoin will likely see UST become a more stable hybrid coin. This will also allow users to exchange $1 worth of UST for $0.99 worth of BTC. He laid out the plan to ensure that users could effectively exchange their UST for a mere premium of 1% for BTC. This was to ensure that the coin would be used in the same way LUNA is currently being used. When pressed further, Do Kwon promised that these mechanics would be explained in clearer and more detailed forms in due time.

Terra currently allows users to create stablecoin pegs to a variety of fiat currencies, with new currencies able to be added by governance votes. One of the main mechanisms of LUNA is an arbitrage system between UST and LUNA. Anytime the price of UST goes below $1, such as 99 cents, LUNA can be used to buy UST at a discount. If UST goes above $1, such as $1.01, it can then be swapped for LUNA at a discount. Swapping UST for LUNA in either direction burns the swapped asset to mint the received one. The BTC system in Terra could function like this.

Kwon believes that bitcoin is the only hard reserve asset that’s been proven out of the digital currencies, and that’s why he has chosen it as a reserve currency for Terra.

A Bold Move or a Flop in Waiting?

Kwon believes that the new tokenized version of bitcoin in Terra’s ecosystem could become the de facto reserve coin for many protocols. He expects the protocols built on top of the chain to adopt the coin. He also expects the coin to expand and become part of every smart contract application that holds treasury.

Do Kwon finalized his plans by announcing that the protocol plans to become a regular Bitcoin purchaser through the Luna Foundation Guard. Reports reveal that about $125 million worth of bitcoin is being bought through Binance as is visible from Kwon’s bitcoin address. He plans to do this every day until April 5, 2022. He still has about $1.4 billion to spend, and that’s to be spent in the next two weeks.

Currently, he already has 18,423 bitcoin as reflected in his address, this is worth around $800 million. 5,934 BTC purchased in the past two days. Do Kwon had maintained a pretty transparent and public display of his journey towards his goal of purchasing $2.5 billion worth of bitcoin. Some quarters view this as an audit you can’t cheat on and are impressed by his methods.

The aftereffects of his sustained purchases are being felt in the BTC market. Both CoinTelegraph Markets Pro and TradingView showed that BTC was about to achieve its highest mark in weeks. Subsequently, bitcoin has gone up a lot in the past week, seemingly in conjunction with Terra’s announcement of buying the king of crypto. There are growing sentiments about the capabilities of Kwon to complete his BTC plan.

The Bigger Picture

The immediate impact of Do Kwon’s plans to purchase $2.5 billion worth of BTC has been felt in both the BTC and LUNA markets. As mentioned above, bitcoin has made gains seemingly in conjunction with Kwon’s announcement. Over the past week, BTC is up over 15%, and over 20% on the month, with most of these gains coming in the past two weeks, as it got over the $40k threshold on March 16, 2022 and hasn’t gone back below that mark.

LUNA started off the month with a big gain, reaching over $100 USD before settling down into the $85-95 range around the time Kwon started buying BTC. In the past day, LUNA has gained over 10% and is now trading over $100 again. LUNA has seen tremendous growth since the fall of 2021 when they started burning more LUNA. Terra’s constant burning of LUNA in order to create UST and vice-versa has created a very strong arbitrage system that has grown the asset from around $30 in September 2021 to where it sits now at about $100 USD per LUNA.

Whatever Kwon envisaged when announcing that BTC would be added to Terra as a reserve currency is going his way. Projections show that it would keep going on the upward scale, especially with about 1 million LUNA leaving circulation every day. Grumblings still exist regarding how such a large purchase is possible. But Do Kwon doesn’t care and is carrying on with his bullish approach to purchasing BTC. So far, both LUNA and BTC holders are likely happy with the move.

Written by: Chidinma Divine Iwu (Dee)

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