Notes 4/17: Bitcoin and Ether Prices

The prices for bitcoin and ether surpassed new thresholds last week on the back of positive economic data and a successful network transition respectively. At the beginning of a new week, they are giving up some of those gains.

Bitcoin price crossed the $30,000 mark, almost touching $31,000, on Friday. As of this writing, it is down by 3.4% from a day earlier to $29,354.26. Ether prices performed a similar feat on Friday, crossing the $2,100 mark. They are also down by 1.2% from the previous day and are changing hands at $2,070.67.

A Rickety Rally

Bitcoin’s surge above $30,000 revived hopes among its enthusiasts that the worse was behind them. It also sparked excitement about another rally. But the cryptocurrency’s sojourn into that territory was brief. On an overall basis, though, bitcoin price is still on a tear this year and has racked up gains of more than 80%, as of this writing.

The circumstances in which those gains have been achieved are questionable, however. In the unregulated hinterland of cryptocurrencies, illusions can often seem like the real thing. The upsurge in bitcoin’s price has occurred during times of low liquidity in cryptocurrencies and precipitous and relentless regulatory action by regulators. The Federal Reserve’s interest rate hikes have also made regulated instruments a more attractive bet for returns than lawless cryptocurrencies used by criminals.

A Shaky Pile of Stablecoin Trades

What to make of bitcoin’s latest price trajectory then?

It has occurred against the odds of a mixed macroeconomic environment that discourages risk. Not only this, the current price increase rests on a shaky pile of stablecoin trades. The biggest trading partners for bitcoin volumes are two stablecoins Tether and TrueUSD (TUSD).

Research firm Kaiko research’s latest update states that Binance’s BTC-TUSD pair has become the biggest bitcoin market in the world. “Last week, trade volumes for the pair officially surpassed 50% relative to all other BTC pairs for the first time, including BTC-USDT pair,” the firm writes.

Tether has always been at the forefront of controversy in crypto. Now, TUSD, another stablecoin with a similar setup for grift, has added to bitcoin’s trading patterns. TUSD has no known use cases and is mostly parked on the Tron network, away from traders, by Binance in a cold wallet. The exchange is attempting to replace its own stablecoin with TUSD for reasons best known to itself and its controlling shareholders.

Ether’s False Rally

A rally in the prices of ether at the end of last week also turned out to be an illusion.

Ethereum’s Shapella upgrade is the final step in its blockchain’s move to a Proof of Stake (PoS) network that slashes its energy consumption and enables, at some point in the future, scaling of its platform to handle more and cheaper transactions than are available currently. As the blockchain’s native token, ether should benefit from the upgrade because it catalyzes demand for a token that, in its current form, is worthless.

But its engine seems to be sputtering. This is even though withdrawals of staked ether are fine-tuned to alleviate selling pressure on the token. Again, research firm Kaiko states that Coinbase, which enabled staking withdrawals within 24 hours of the event, has seen more sells than buys for its ETH-USD pair.

Sales of the trading pair outpaced buys by $30 million immediately after staking withdrawals were enabled at the exchange, meaning traders rushed to the exit door once Coinbase allowed them to withdraw their tokens. They are still doing that this morning, with the sales of withdrawn ether surpassing buys of the same pair by $28 million. Coinbase had paused staked ether withdrawals last Friday.

Making Profits

Coinbase processed 12% of all staked ether through its platform. It should be interesting to note ether’s price action in the lead up to and after other big players enable withdrawals. Binance has said it will enable withdrawals this Thursday while Lido, the biggest staking platform for ether, will allow withdrawals only towards the middle of May.

The question of when to enable withdrawals of staked tokens is important not only for ether prices but also for investors at various platforms. Depending on the staking platform, the average purchase price for ether, or the price at which investors bought their ether for staking, traverses a broad range. For example, Binance has an ether price range of between $647 to $2717. This means that some investors on its platform will suffer losses if they withdraw their entire stake to resell in crypto markets.

The Lido investor will have to wait, both in terms of price action and withdrawals, for profits. The average ether purchase price on the platform is $2,547, meaning ether prices will have to jump by roughly 25% in the next month to make it a profitable trade for the Lido staker.

Gloomy Weather Ahead

Will ether prices oblige?

The chances are unlikely because there are no further catalysts or news events to pump up the token’s perceived value. Liquidity levels for the token, which have already crashed by 40%, also continue to remain low.

During her appearance in CoinDesk’s show this morning, Christine Kim, Vice President of Research at Galaxy Digital, said she hasn’t seen an increase in staking activity from institutional investors or witnessed the launch of new features aimed at attracting more institutions to the ethereum staking ecosystem. What this means is that there aren’t many, if any, new investors in the cryptocurrency.       

But ether’s declining prices are still a profitable exercise for some. According to data from Nansen, the maximum amount of ether stake, equal to 4.3 million, was purchased at prices between $1,500 to $2,000. This means there is still room for some investors to book profits from ether’s current price action. But that happens only if their staking platform enables withdrawals.

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