Terra Classic’s 1.2% tax burn supports bullish outlook, but here’s a problem

Terra Classic [LUNC] had quite an exciting time the last few days as a major milestone implementation approached. Ever since the crash in May, the community has expressed concern about 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 is a brief explanation. All on-chain LUNC transactions will be subject to a 1.2% tax. This includes wallet and smart contract interactions. However, LUNC trades on exchanges may not be eligible for the tax.

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

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

Break:
Are you ready for the Proposal 1[ads1].2% tax

Change burning parameter ??

This could burn the entire Terra family #GONE #USTC #LUNA ??????

RT IF YOU WANT THE BURNING TO HAPPEN pic.twitter.com/hcjdKjaxbs

— luncvalidator (@luncvalidator) 1 September 2022

The LUNC missile

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 oversupply, and this will have a positive impact on long-term price action.

The coin rose by approximately 160% in the last seven days. This upside was enough to put it deep into overbought territory and thus the current short-term bearish outlook.

Source: TradingView

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

However, its downside may be limited given that the tax and burn mechanisms already encourage a lot of capital inflows at lower price levels.

Furthermore, LUNC is currently experiencing an influx of social volume. This has been the case for the past two days, indicating that more traders are paying attention to what is happening.

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

Source: Sentiment

Terra Classic’s weighted sentiment gauge is looking to improve significantly in favor of the bulls. These developments could throw LUNC into a strong accumulation phase now that investors are warming up to the network.