Notes 5/23: Bitcoin Price and Asian Bull Runs, Ether Deposits

Bitcoin price moved slightly higher on news that Hong Kong’s Securities and Futures Commission (SFC) will begin accepting applications from exchanges to offer cryptocurrency trading to retail investors from June 1 onwards.

As of this writing, the cryptocurrency is changing hands at $27,299.15, up 1.2% from its price yesterday.

An Asian Bull Run?

According to CoinDesk, SFC’s announcement is “consistent” with expectations that Asian markets will power crypto’s next bull run. Whether that bull run will happen soon is open to question. Crypto is currently beset by a plethora of problems that range from declining liquidity to a regulatory onslaught.

Besides, SFC is responsible for security regulation, meaning most crypto tokens currently trading at unregulated exchanges will fail to pass its listing requirements. The agency has also crimped the entryway to crypto trading by prohibiting trades involving stablecoins and other interest-bearing instruments.

While regulators have encouraged banks in the region to work with crypto firms, they have also advised financial institutions to take a “risk-based” approach. The current slate of scandals at crypto firms and the state of its markets should put most institutions on alert about the dangers of associating with the asset. It is safe to say that the Asian bull run will not be happening any time soon.  

The Stablecoin Connection  

For the time being, bitcoin price is wedded to the drama playing out in Washington D.C. The state of debt ceiling negotiations has become the immediate determinant of its price. Previous brinksmanship during debt ceiling negotiations between Democrats and Republicans in 2011 resulted in a loss of $2.4 trillion in household wealth. This time around, the stakes are even higher.

Treasury Secretary Janet Yellen recently said that missing debt payments “could crack open the foundation upon which our financial system is built.” Might that crack provide an opening for bitcoin?

Not really since crypto’s connection with mainstream markets has broadened due to a surge in market capitalizations for stablecoins like Tether. Bitcoin has significant trading volumes against stablecoins Tether and Binance’s stablecoin BUSD. Both hold substantial reserves of treasury securities to back up their circulating supply. In turn, this means that they will import mainstream markets volatility that ensures from a possible debt default into crypto’s supposedly uncorrelated matrix.   

Ethereum Staking’s Passive Income

More than 4.4 million ether coins have been deposited into the staking smart contract since April 12, according to analytics firm Glassnode. According to its calculations, the total amount of staked ether now stands at 22.58 million. A Bitfinex analyst told CoinDesk that the surge in demand “originates from large ether holders…who are seeking to generate passive income.”

Or they might be taking advantage of a geyser of rewards emanating from the blockchain since unlocking of staked tokens was enabled in April. The blockchain’s annual percentage rate (APR) yield for staked ether has multiplied after the upgrade, at times reaching mind-boggling rates of 8.6%.

Lido Leads Deposit Surge

There is no rational explanation for the increase in yields since Ethereum’s fundamentals and technology remains the same. This means that the blockchain still has scaling and centralization problems. Its staking program is also still dominated by Lido – a platform that enabled withdrawals of staked ether only last week, after a final rewards pump from a meme coin.

According to data from Dune Analytics, Lido has also received the biggest inflow of ether deposits after the upgrade. The platform offers magic yields that match or exceed those offered at Ethereum. It is also centralized, meaning users cannot withdraw their ether from the platform unless Lido allows them.

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