Notes 5/2: Bitcoin Price in May, Ether’s Fantastic Yields

In traditional finance markets, May is typically a month to sell and go away. Translated, this means that traders exit markets and prices drop. Before its trading volumes metastasized, crypto was an uncorrelated asset. It bucked conventional trading wisdom and rose in May for some years and fell in line during the others.

With their increasing correlation to traditional finance, however, bitcoin markets have begun following the mainstream maxim. For example, bitcoin price fell from $38,561.57 at the start of the month to $31,865.75 by its end after the Federal Reserve telegraphed its intention to commence an era of rate hikes.

Almost a year later, that era may be about to end. Many traders believe that the agency will announce its last hike for this year of 25 basis points tomorrow. But the chances that bitcoin price will respond with a rally are slim.

How to Trade Crypto?

The 70% rally in bitcoin price this year sounds less impressive when it is evaluated against the decline in crypto liquidity. The shrinkage in liquidity is a function of macroeconomic volatility and regulatory action against cryptocurrencies. It is also due to problems in beginning a crypto trade. For traders willing to withstand crypto volatility, the options to enter crypto are diminishing.  

According to research firm Glassnode, the number of stablecoins held at centralized exchanges fell to $21.06 billion last month, from a peak of $44 billion, in December. Stablecoins are a gateway to crypto trading. They facilitate trading in tokens by connecting different chains, and exchanges, and by acting as proxy for fiat currencies. Fewer such coins at exchanges means fewer trades at centralized exchanges.

That’s bad news because the bulk of trading for cryptocurrencies occurs at centralized exchanges. Glassnode says the dwindling stablecoin balance points to trader aversion for risk.

But there are not enough traders in crypto. Likely, it is a reflection of regulatory action that has crashed market capitalizations of Binance’s stablecoin BUSD and USDC. While Tether’s USDT has become dominant by issuing new tokens, a significant portion of that issuance resides in cold wallets on Tron, a blockchain whose founder has been charged with fraud by regulators.  

True USD (TUSD) has replaced BUSD as the second biggest trading partner for bitcoin. But it is hardly an adequate replacement. The stablecoin, which is issued by tech firm Archax, has measly volumes because most of its supply is locked in cold wallets. It is also a regulatory nightmare, meaning regulators can easily curb or close its operations.

Declining Trade Sizes

Traders can also find their way into crypto trades using US dollars. But banks are hesitant to work with cryptocurrency businesses. A result of this is that there are very few exchanges that offer this facility. According to data from research firm Kaiko, the average trade size for BTC-USD trades has only “slightly increased” since the beginning of this year even as the cryptocurrency has posted double digit gains in its price.

Amongst regulated exchanges, BTC-USD trading volumes have declined. The average trade size dropped from $5.7k to $2.8k at Kraken this year. At Coinbase, it fell from $3k to $1.2k in the same period. The biggest drop occurred at Bittrex, which blamed regulators for the closure of its operations in the United States, where trading sizes fell from $3.2k to $865. This means that an increasing number of bitcoin trades fueling the rally in its price this year are occurring at unregulated exchanges and against questionable coins.   

Meanwhile, bitcoin dominance is on the rise this year. As of this writing, the cryptocurrency accounts for almost 47% of all trades in crypto. The dangers emanating from its ecosystem are a sign that it might be time to sell and go away.

Ether’s Fantastic Yields

The rewards or yield for staking Ethereum’s native token ether have skyrocketed after the Shapella upgrade. As of this writing, the world’s second biggest blockchain by market capitalization is offering a staking yield of 6.7%. In the run up to the upgrade last month, that figure hovered between 4.2% to 4.3%.

The Shapella upgrade enabled withdrawals of staked ether in defined and short timeframes. The cryptocurrency’s proponents say the ability to move in and out of ether’s staking program would attract investors to its ecosystem and convert the token into a Wall Street asset.

Not much has changed materially in Ethereum’s ecosystem since the upgrade, however, to justify the surge in yields. There is a slight decline in the number of validators bolstering its network and the number of transactions in its network, a determinant for consensus layer rewards, roughly remains the same.

The only plausible explanation for the jump is the use of Miner Extractable Value (MEV) bots at validators. These bots use fraudulent strategies to front run user transactions and inflate user fees. The resulting profits accrue to validators, in the form of increased staking rewards, at the cost of users. MEVs comprise a significant portion of the overall reward figure. For example, according to current calculations at, MEVs and additional fees due to transactions were responsible for almost 2% of the overall 5.55% yield offered at the platform.

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