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Bitcoin has potential, DAO & Stability fee, DeFi in Crypto – COIN360
DAILY
March 21  |  1 min read

Leverage. Friend Or Enemy?

BeQuant Analytics, a daily cryptocurrency market analysis contributor

The crypto community and, in particular, the Ethereum community, has very much embraced the world of Decentralised Finance (DeFi). At the very heart of it is, of course, MakerDAO and the Collateralized Debt Positions (CDP). The well-documented impact CDPs have had on the stablecoin DAI has been somewhat adverse and, in order to readjust the peg, the DAO community voted to hike the stability fee. The latest reports suggest that another hike is being explored, this time to 7.5%. However, even a hike to this level is unlikely to have a material impact on the demand for the leveraged structure that CDPs facilitate. The market rates for borrowing/lending Bitcoin can be viewed as a benchmark and, as it stands, depending on various risk parameters, lending rates can be as low as 5% and go up to low double-digit territory. Since ETH coin is perceived to be an “inferior” crypto asset to Bitcoin, there is no reason why this shouldn’t translate into higher risk premia as demanded by DAI. Also, as a reminder, Wyre and Bloqboard introduced secondary trading for CDPs. This allows large holders to repay their debt in an OTC trade without acquiring DAI or MKR in the open market. As such, the base case scenario is that further adoption of DeFis will continue to support the cryptocurrency market, and especially the ETH, despite the recent Ethereum’s hard fork and the planned move to Proof-of-Stake.

In other news, in a new interview with Fox Business, US Securities and Exchange Commission Chairman Jay Clayton said that Bitcoin and crypto have a lot of potential, adding there “may be a case where a Bitcoin ETF could satisfy our rules.”

Finally, as a reminder, in a statement released last week, the Chicago Board of Options Exchange (CBOE) announced that it will stop listing Bitcoin futures contracts in March of 2019. The latest CFTC Commitment of Traders report for CBOE Bitcoin positioning shows that the total number of long positions stands at 2,404 vs shorts of 3,735, total OI 4,109. These positions will need to be unwound, rolled to another vendor, or allowed to expire. Notice, the total number of those with shorts outnumber those that have long positions.

Note:

  • CME Bitcoin futures will expire on 29.03.19

Thank you for reading,

The BeQuant’s Analytics team