Terra Luna is a blockchain project that made waves during the bull market of 2021 before catastrophically collapsing in 2022. Erasing over $US40 billion from the market, Terra Luna caused extreme distress to the crypto ecosystem and is partially to blame for the carnage in the industry ever since.

Initially, the Terra protocol was designed as an innovative force in the stablecoin domain, centred around two primary cryptocurrencies: UST and LUNA. While UST was pegged to the USD, LUNA acted as the governance token of the ecosystem. What set UST apart from other stablecoins was its backing. Instead of relying on banks holding equivalent USD, UST gained backing from LUNA. This unconventional approach, which essentially backed a stablecoin with a volatile asset, was viewed with scepticism.

The year 2022 proved catastrophic for Terra. As the broader crypto market grappled with challenges, LUNA’s price began its downward journey. This decrease triggered a domino effect, devastating the values of both UST and LUNA, pushing them near zero and initiating a widespread liquidation event. The fallout was immense, with numerous investment funds, crypto exchanges, and projects going bankrupt.

The Terra community opted for a fresh start to address the crisis, giving rise to what’s informally known as LUNA 2.0.

The aftermath resulted in a new Terra chain (LUNA 2.0) and rebranding the original as LUNA Classic (LUNC). In relation to these developments, Willemsen commented: “The Terra chain was rechristened as Terra Classic, with LUNA undergoing a similar transformation.”

“Post its launch in May 2022, LUNA experienced wild price fluctuations, finding brief stability near $US3. However, as we speak today (18th Aug, 2023), it’s hit a dismal all-time low of $US0.40.”

Predicting the trajectory of a cryptocurrency is as much about understanding its inherent strengths and weaknesses as it is about gauging the broader market forces at play. As we move further into the second half of 2023, there is little anticipation for Terra Luna (LUNA) to return to its former glory.

Willemsen brings a sobering perspective to the table. Reflecting on LUNA’s potential in the coming months, he states: “I find it extremely difficult to mount a bullish case for LUNA over the medium to long term.” According to Willemsen, the optimism for a bright future for LUNA is primarily contingent on external market dynamics. “The only way I can see it performing well against USD or AUD is if the broader crypto market enters a sustained bull market.”

However, even in a rosy market scenario, Willemsen expresses reservations. He notes that while broader market gains might temporarily boost LUNA, its inherent competitive standing might not promise lasting superiority.”But even then, in this scenario, I seriously doubt LUNA can outperform its main competitors—those being any blockchain that is optimised for smart contracts, such as Ethereum’s ETH and Solana’s SOL—over the duration of the next bull cycle,” he notes.

While market surges might elevate various tokens, inherent strengths and robustness play a pivotal role in determining which cryptocurrencies can maintain their momentum—and which might falter.

The future trajectory of any cryptocurrency is a combination of both internal dynamics and broader market trends. We’ve sought insights from Willemsen to shed light on the potential bullish and bearish paths for LUNA.

The Bull Case

A lot would need to change for LUNA to have a solid bullish case. Not only would it need to catch up with competitors, but it would also need to shake the distrust it has developed from investors and projects due to its past.

Willemsen outlines a scenario where Terra Luna might reverse its seemingly endless downtrend and increase in price. He mentions that LUNA could increase in value “if the broader crypto market enters a sustained bull run”. In such an environment, he believes that LUNA, like many altcoins, stands to benefit from the cyclical nature of crypto markets.

“LUNA may benefit from crypto investors rotating profits into riskier altcoins,” he says. If past trends are reliable indicators, such a shift could manifest “after BTC, ETH, and major altcoins have trended higher for several months”.

Although there is not a strong bull case for the project, in crypto anything could happen.

The Bear Case

The bear case is much stronger for LUNA in its current state. Willemsen outlines potential challenges on the horizon for LUNA, pointing to the advancements of Ethereum, which has traditionally faced scalability issues.

“In recent years, alternative layer-one (L1) blockchains, such as Terra, benefited from Ethereum’s inability to handle significant user demand without fees surging to unsustainable levels,” he said.

But Ethereum’s landscape is evolving. Willemsen explains: “Since then, Ethereum has become somewhat more scalable through the proliferation of layer-two (L2) solutions known as rollups.” If Ethereum continues on this path to better scalability and cheaper fees for users, it could diminish the unique value proposition of chains like Terra.

Further strengthening the bearish view, Willemsen points to the vibrant ecosystems of other alternative L1 blockchains, cautioning: “While Terra’s user and developer ecosystem is vibrant relative to the original chain, it still has its work cut out for it when compared to other alternative L1 blockchains.” Citing examples, he mentions Solana, Polkadot, and Avalanche as formidable contenders in the space.

With these insights, it’s clear that while Terra Luna has potential avenues for growth, it faces formidable challenges.

The ultimate question for any potential investor is whether a particular asset represents a wise allocation of resources. With the backdrop of Terra Luna’s intricate history and the crypto market’s inherent unpredictability, making an investment decision takes a lot of work.

“If the crypto market enters a sustained bull market, LUNA may perform well against USD and AUD,” Willemsen says.

This acknowledges the power of a rising tide in the crypto world, which can lift various tokens, including LUNA. However, Willemsen doesn’t shy away from a more bleak perspective, saying, “Longer term, LUNA faces immense challenges to compete against the cryptocurrencies native to those various blockchains that currently bolster user and developer ecosystems that are far more vibrant than Terra’s.”

Willemsen’s arguments underscores an important consideration: the relative strength of a cryptocurrency is not just about its individual merits but also how it stacks up against competitors. While Terra Luna might benefit from short-term market trends, its standing, in the long run, will likely be determined by its ability to foster a thriving ecosystem and offer unique value propositions in the face of stiff competition.