Terra Classic burning 1.2% tax can be a driver of price increases or a problem

Terra Classic [LUNC] had quite an exciting time in the last few days as it approached a major milestone implementation. Ever since the May crash, the community has expressed concerns over the excess LUNC supply in the market. The 1.2% tax is aimed at solving this problem.

Unfortunately, many LUNC traders and potential traders may not understand what the 1.2% tax is all about, so here’s a brief explanation. All on-chain LUNC transactions will be subjected to a 1.2% tax. This includes wallet and smart contract interactions. However, LUNC trades on exchanges might not be eligible for the tax.

The idea behind the tax is that it will help reduce LUNC’s oversupply. One of the major downsides is that it will make Terra Classic on-chain transactions more expensive.

A price that the community is willing to accept this trade-off in favor of a deflationary outcome. It is still unclear whether potential projects looking to roll out their protocols on Terra Classic will find this to be a challenge.

The LUNC rocket

LUNC delivered a robust bullish performance this week and this is likely due to the positive response to the 1.2% tax. Such measures will aggressively reduce the oversupply and this will have a positive impact on its long-term price action.

The coin rallied by roughly 160% in the last seven day. This upside was enough to put it deep into overbought territory and hence the current short-term bearish outlook.

Source: TradingView

The crypto was already down by 16.77% at press time, confirming that profit-taking was already happening after the overbought conditions.

However, its downside might be limited considering that the tax and burn mechanisms are already encouraging a lot of capital infusion at lower price levels.

Furthermore, LUNC is currently experiencing an influx of social volume. This has been the case in the last two days, indicating that more traders are paying attention to what’s going on.

Such an outcome may encourage more LUNC accumulation and soften its downside because there is now a strong incentive for long-term HODLing.

Source: Santiment

Terra Classic’s weighted sentiment metric is attempting to improve significantly in favor of the bulls. These developments may plunge LUNC into a strong accumulation phase now that investors are warming up to the network.

 


Sep 03, 2022

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