The market is known for its ability to inflict the greatest amount of pain in the most unexpected of ways and what better market to demonstrate it than the fast-growing digital asset market awash as it is with retail and highly leveraged flow. As it stands, the market has its sights set on the key $6k level, and the FOMO crowd, together with the moon boys, has champagne on standby, getting ready to rejoice and flood the media with “I told you so”, “bull run,” etc. memes.
However, let’s look at where we are and how we got here. The cheap source of leverage, as provided by MakerDAO proved to be too good of an opportunity to pass up. So much so that the total amount of ETH locked in the credit ecosystem rose to 2.11%. This amount has now declined to 1.88% and the stability fee has risen to 19.5%. As a result, the DIPOR rate (Decentralized Inter-Protocol Offered Rate), which can be thought of as the LIBOR rate equivalent, stands at 19.20%. This value may be meaningless at the moment but as the DeFi market expands further, the DIPOR rate will become a centerpiece when it comes to investment decision making and also gauging investor sentiment towards risk, as well as leverage.
So, short Ethereum trade, which was ever so popular over the course of 2018, has helped to ensure that the market is standing on its own two feet in the early stages of 2019. The subsequent explosive use of leverage via Collateralised Debt Positions (CDPs) has provided the market with another boost to its somewhat crippled sentiment. The eagerly anticipated and several times delayed hard fork finally took place as it transitions from PoW to PoS and according to the latest reports, an Ethereum (ETH) 2.0 Proof-of-Stake (PoS) testnet beacon blockchain is now live (as per the announcement by Preston Van Loon, co-founder of sharding development firm Prysmatic Labs).
On a less positive note, the sudden collapse of the Canadian crypto exchange QuadrigaCX continues to perplex with some $135m of funds still unaccounted for. Separately, at back end of March, it was reported that crypto exchange Bithumb was hacked for $13m in a suspected insider job. The most recent high-profile exchange hack took place at Binance, where hackers employed a variety of tactics including phishing and viruses to obtain a large number of 2FA codes and API keys in addition to other information. According to the exchange, there was one affected transaction, wherein hackers were able to withdraw 7,000 bitcoins (BTC) worth $40,705,000 at press time. In a letter on Binance’s website, CEO Changpeng Zhao stated that the bitcoins were withdrawn from its hot wallets, which contain only 2% of the exchange’s total bitcoin holdings. Zhao stated that Binance’s other wallets are unaffected. As to be expected, the market reacted negatively to the news but the move lower was gradually pared during overnight trading hours and Bitcoin is trading within touching distance of the $6,000 level.
The recent Bitfinex and Tether developments proved to be only a minor detriment for the upbeat market sentiment and while it does bring some clarity to the market in regards to the stablecoin, which has had its share of controversy, the market promptly recovered the losses suffered upon the release of the news.
The subsequent market move towards the $6k level is a true testament of the growing uptrend and belief in the market and, as they say, if it doesn’t go down on bad news, then it probably isn’t going down at all; in other words, do not fight the trend…
Thank you for reading,
The BeQuant’s Analytics team