The purpose of it was to backstop Luna/UST in times of need with actual collateral that can be drawn upon to stem a tide from rapid to a slow trickle. BTC would do this, but so would USDC. Why depend on the former when we could have used the latter? There is precedent for this too a la FRAX / FXS.
One issue with depending on BTC is that it follows the vagaries of its volatility. One issue with depending on USDC is that it’s tied to centralized dollar still. Arguably the former is worse than the latter though for a stable reserve.
BTC was DeFi and as long as it kept a relatively stable profile that it could weather small storms. It doesn’t work when all assets fall in value at the same time. Holding any specific currency is a liability. For example before Russians went on gold backing nobody wanted the rubles and now even if you want the ruble your government will sanction you. While nobody disagrees that Russians committed atrocities, you never know if your country’s currency will crash or become restricted. BTC was supposed to be the next best thing to decoupling. BTC has a base value related to the mining production costs and that people mining won’t want to sell for any lower. After all it costs them electricity to mine coins or to validate your transactions. The value of BTC can grow above the mining costs to what investors perceive as a store of value. Even with all this BTC dumping it’s value is still much higher than the appreciate of gold.