Notes 6/1: Bitcoin Price, LDO Liquidity

Down and down goes bitcoin price. A resolution of the debt ceiling drama should have boosted the cryptocurrency’s price. But last weekend’s round of profit taking for investors turned out to be a brief respite. As of this writing, the cryptocurrency is changing hands for $26,881.68, unchanged from a day earlier. While the price is up by a measly 2% from a week earlier, it is down by 6% on a monthly basis.

A Liquidity Shock

The ostensible reasons for bitcoin’s latest price decline are fears of prolonged inflation and an interest rate hike at the FOMC meeting two weeks from today. However, the Fed has indicated that it is in a mood to pause rate hikes until they can further assess data relating to their hike regime.

Meanwhile, bitcoin price’s recent gyrations has led some analysts to predict a downturn in crypto market liquidity. The Treasury market’s attempts to replenish their account by selling bonds will suck liquidity out of risky markets like cryptocurrencies, they say.

Other geographies could make up for the losses from US markets. But things are looking dire across the pond as well. Inflation in the European Union eased but ECB chief Christine Lagarde said there is still ground to cover. Translated, this means that she is not willing to let up on interest rate hikes in the future.

A raft of disappointing economic data from China means that it might be a while before that country, which accounted for some of the biggest trading volumes for cryptocurrencies before 2017, steps up to the plate to make up for declining liquidity.

Where do these developments leave bitcoin price? In a precarious place. While regulators in the United States are intent on curtailing crypto, Asian markets are not yet ready to pick up the slack.

Lido DAO’s LDO Token

According to a note released by Kaiko Research last week, liquidity for Lido’s governance token, LDO, has jumped this year. In the last year, LDO prices have skyrocketed by 102.3%. Lido is the world’s biggest staking platform for ethereum and accounts for more than a third of all staked ether.

The highest trading volume month for the token was February this year. Kaiko states that liquidity surged for the token from January of this year, when excitement over staking withdrawals began. The biggest market for trading LDO was, no surprises, at Binance, which accounted for $3.2 billion worth of trading. Binance is unregulated and infamous for dubious practices on its platform.

LDO Token Holders

The Lido Treasury holds the biggest stash of tokens for LDO but its share has shrunk this year as it paid out incentives to prop up the price of stETH in decentralized finance (DeFi) markets. There is a new large holding of LDO tokens, write Kaiko’s researchers.

Binance increased its holdings of LDO tokens from $18 million on 6 March to 26 million by May 9. During this time, a manufactured spike in transaction fees minted a surge of rewards for staking platforms.

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