The market endured a sharp correction, with Bitcoin falling from the $8K area into the low $7K area. Having covered so much ground so quickly, profit taking at this stage is not only natural but also a healthy development for the market. Crowded trades, especially those driven by high leverage and aggressive retail participation tend to result in dramatic market collapses, as evidenced by Bitcoin’s performance following the Dec’17 rally. However, apart from profit taking, there is another market development that deserves scrutiny.
The DeFi market has been growing exponentially and, in conjunction to traditional markets, crypto has also fallen in love with leverage. Prior to the aggressive stability fee hikes by MakerDAO to re-peg DAI, the total amount of ETH locked in the credit ecosystem stood close to 2.1%. The latest reading is 1.7%, while the price of ETH is obviously significantly higher relative to what it was at the start of the year. Also of note, the so-called “lock” function, which allows holders to add more collateral to CDP (you do this when you open a CDP or when the price of ETH drops and you are below your personal collateral threshold or your CDP is approaching liquidation) has risen to a 3-month high, as has the function dubbed “wipe”, which allows holders to pay off their loans. At the same time, “draw”, a feature that allows users to take on loans in DAI from your CDP, remains supported. It is this particular disconnect that points to a further unwinding of positions and ultimately lower prices. It will be interesting to see how MakerDAO and DAI would react to any aggressive unwind, should one indeed materialise.
In other news, as reported by Bloomberg, data from TokenAnalyst shows that withdrawals from trading platforms including Bitfinex, BitMEX, Binance and Kraken have exceeded inflows by about $622 million over the past 5 days. In addition to that, Bitfinex had net outflows of more than $1.7 billion of BTC and ETH from the exchange since April 26, after the New York attorney general alleged the companies had engaged in a coverup.
Elsewhere, Cointelegraph reported that NY Supreme Court Justice Joel M. Cohen has granted a modified Bitfinex preliminary injunction which will prevent Bitfinex and its principals/agents from accessing the Tether credit line, and force them to comply with the NYAG investigation. The injunction is set to expire in 90 days. Finally, Chainalysis research shows that just 376 people hold more than 30% of all Ether, while over 20% of all Bitcoin is controlled by whales.
Thank you for reading,
The BeQuant’s Analytics team