The price of Avalanche (AVAX) appears to be following a similar trajectory to Terra (LUNA), largely because AVAX is one of the assets backing TerraUSD (UST), Terra’s new stablecoin; the other backing asset is the US dollar, from which UST recently detached.
After UST lost its peg to the US dollar, its price became unstable and has since been declining. That prompted the Luna Foundation Guard (LFG), a Singapore-based non-profit supported by TerraLabs, to begin liquidating portions of its crypto reserves in an effort to restore UST’s $1 peg. Because AVAX is a major component of those reserves, the asset has come under pressure amid fears of large sell-offs.
Today AVAX experienced a sharp drop, falling more than 35% during the session.
At the time of writing, AVAX was trading at $31.39, down 36.28% after retreating from a daily high of $50.09. This decline occurred alongside UST’s collapse, which has lost more than 86% of its value.
It’s important to note that UST’s decoupling from the dollar happened despite LFG’s efforts to liquidate crypto holdings in an attempt to defend the peg. As of now, LFG still holds approximately 1.97 million AVAX, valued at about $74.75 million.
Efforts by Avalanche bulls to support the AVAX token
Avalanche bulls have been attempting to prevent the token from falling below a key support level around $36. Their interventions helped the token recover roughly 22% of its daily losses at one point. The price bounced from $32.50 to above $39.50 before sliding back to $31.39 at the time this piece was prepared.
Even as AVAX aims to regain an upward trajectory, it faces headwinds from a higher interest-rate environment that has reduced buyers’ appetite across the crypto market.
Given these pressures, the AVAX/USD pair may retest the $36 area as support for any upward move. If that support fails, the market could expose the pair to downside risk toward the $20 level.