Crypto Fund Arca Sees Buying Opportunity in Embattled Terra Stablecoin

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Key Insights:

  • Arca sees the collapsed stablecoin as a buying opportunity.
  • The company CEO is confident that UST will regain its dollar peg.
  • LUNA prices have collapsed to almost zero dropping 99% in under a week.

Crypto hedge fund Arca is confident that the Terra stablecoin, UST, will return to its dollar peg at some stage. In a note to investors in an investment and risk committee meeting this week, the firm said that the stablecoin would regain stability and represents a buying opportunity.

Arca, which has $500 million in assets under management, has a number of crypto-denominated funds for institutional investors. The firm’s CEO does not subscribe to the FUD (fear, uncertainty, and doubt) and rafts of adverse reports surrounding the project.

Terra Buying Opportunity

CEO Rayne Steinberg told the company’s limited partners that these opportunities are welcomed when others are fearful.

“After this analysis, we felt, and continue to feel, that UST will ultimately maintain its peg, and several attractive opportunities had become available,”

He explained that the firm could purchase UST at a significant discount to the par in its Digital Yield Fund (DYF) and then deposit it with the FTX exchange, which offers 100% yields “given the buyer/seller imbalance during peak fear.”

He stated that there had been similar situations in the past, citing the SushiSwap decentralized exchange token, SUSHI, and the Bitfinex exchange token LEO.

“We have significant experience in distressed situations from 2008/2009 up to and including SUSHI and LEO (Bitfinex) in recent years,”

UST is still trading way below its peg following its initial collapse on Tuesday, May 10. The stablecoin is currently trading at $0.72, according to CoinGecko. It dumped down to a low of just below $0.30 on May 11 but rapidly rebounded to current levels.

There are arbitrage opportunities for those confident enough to take the risk in buying UST with another stablecoin such as Tether or USDC and then selling it if or when it recovers the peg.

On May 11, Terraform Labs CEO Kwon Do addressed the crypto community with details of a recovery plan. “The only path forward will be to absorb the stablecoin supply that wants to exit before $UST can start to repeg. There is no way around it,” he stated.

The Luna Guard Foundation has also turned to investors seeking as much as a billion dollars in investment to shore up the beleaguered stablecoin.

LUNA Price Collapse

The underlying token that collateralizes UST has collapsed to practically nothing. At the time of writing, LUNA was trading at just $0.70, having dumped 99% of its value in less than a week.

LUNA hit an all-time high of just under $120 on April 5, when hype over the algorithmic stablecoin ecosystem was at its peak.

Today, the broader crypto market is also getting hammered hard with a further 10% dump in total market capitalization, which is currently $1.32 trillion.