What is behind the LUNA Rally, could its price decouple from Bitcoin?

The LUNA price moves on its own as the cryptocurrency market tends to the downside. The Earth-native cryptocurrency reports a 6.4% profit over the past week, with BTC, ETH and BNB moving sideways.

Related Reading | Mars Protocol Will Launch on Earth, But Why MARS Saw a Massive Dump

At the time of writing, LUNA is trading at $89.35 with a 4.8% loss over the last 24 hours. Despite recent losses, the cryptocurrency is rapidly climbing among the top 10 cryptos by market. It is currently in 7th position after pushing Cardano (ADA), Solana (SOL) and Polkadot (DOT).

LUNA is trending to the upside on the daily chart. Source: LUNAUSDT Tradingview

A report by economist Murray Rudd attempts to demonstrate a potential decoupling between Bitcoin (BTC) and Earth (LUNA). The number one cryptocurrency has a strong hold over the entire market.

Therefore, it is common for altcoins to trend down or up, moving in tandem with the BTC price action. Recently, the LUNA price can start to break out of this pattern, sometimes it tends to move in its own direction, independently of Bitcoin.

To support this thesis, Rudd examined the performance of LUNA/BTC on different timeframes and with different metrics. The economist represented the performance of this trading pair with different correlation zones.

As seen below, the green area represents a high correlation, while the red to white area represents periods when LUNA is uncorrelated (red) or shows a low correlation (white) with BTC. Based on this chart, Rudd said:

The degree of positive correlation appears to have declined in duration and strength (i.e. more time spent in the weak positive correlation zone compared to strong correlation) as of August 2021.

Luna LUNABTC Earth
Source: Murray Rudd via Substack

Furthermore, analyzing the LUNA/BTC correlation over a 30-day period from January 2020 to January 2021, the economist found times when the metric moved with more visibility.

For example, the chart below shows a decline in correlation for the trading pair during Q4 2020, when BTC started rallying to new highs. On the other hand, the chart indicates that LUNA tends to move on its own, at least in this period, after a long period of BTC price consolidation.

MOON Earth LUNABTC
Source: Murray Rudd via Substack

Luna’s decoupling, what it means for future price action

The economist also determined a first major period of uncorrelated prices for the LUNA/BTC trading pair during the spring of 2021. At that time, the cryptocurrency market reached a local high, surpassing $2 trillion in capitalization terms.

Throughout 2021, Earth’s native asset will experience other uncorrelated or low-correlated periods. When the cryptocurrency market started to recover from a long period of bearish price action, in the summer of 2021, the LUNA/BTC trading pair “abruptly switched from positive correlation to uncorrelated”.

In September 2021 and December 2021, LUNA experiences similar events. At that time, the ecosystem was discussing several key improvements to its mainnet and implementing a burn mechanism for LUNA.

These updates and new mechanisms in the Earth ecosystem have been active for a short time. Over time, they can contribute to the complete decoupling of LUNA from Bitcoin and the cryptocurrency market. Currently, Rudd believes such an event may never happen, but added:

The price of LUNA is not (and probably will not be) completely decoupled from the price of BTC. This indicator cannot be used to predict future movements in correlation, but it definitely showed significant decoupling of LUNA and Bitcoin prices since summer 2021.

Uncorrelated assets are potentially valuable to investors as they can become a hedge against industry-wide trends. In a bear market, investors can protect their wealth by jumping into a LUNA position or using their stablecoin UST.

Related Reading | Terra (LUNA) outperforms popular Cryptos Ether, Dogecoin in the last 24 hours

The increase in demand for this decentralized stablecoin and its impact on the price of LUNA is yet another reason that could further strengthen the long-term thesis of the Terra ecosystem.

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