Media magnate Steve Forbes recently criticized cryptocurrencies for their volatilityand say that they can be a steak one day and can be turned into dog food the next day. Price fluctuations have accompanied the digital currency market since its inception and were a major reason for traders’ interest in cryptocurrencies.
But it seems that something has gone wrong in the past few months. Oddly enough Bitcoin (BTC) and Ether (ETH) have shown unusual stability since the end of May. And while relatively stable bitcoin price momentum may be due to the lack of significant events in the market after halving, Ether’s passive behavior confuses some traders.
The question is Why is the price of ETH stable despite the growth of its other fundamental parameters and the market boom in defi and ether options? Is this stability good for the market in general and what does it mean?
Market news have no influence on the ETH price
Positive news has always been an important catalyst for the growth of cryptocurrency prices. Now, Ether has three stories of this kind at the same time: the growth of the DeFi market, the upcoming Ethereum 2.0 update and the boom in ETH options.
Also noteworthy is the rapid rise in Ethereum transactions to a maximum of 27 months due to the increasing popularity of Tether (USDT), which is based on the Ethereum blockchain, and the increase in DeFi applications. According to recent data, the number of USDT transactions has been made on Ethereum Since the beginning of the year, 450% has increased, the volume of daily transactions by DeFi users reached a record high in June, and the commissions of the Ethereum network reached multi-year highs to beat Bitcoin. Although some amounts have been linked to spam from miners who flooded the network with thousands of small transactions, the use of the Ethereum blockchain has reached new highs, suggesting fundamental growth.
The news about the upcoming release of Ethereum 2.0 is ambiguous, but more positive than negative. According to the latest reports, most of the work to update the proof-of-stake (proof of attendance in Spanish) has already been completed and customers are starting test networks to support the expected event. In particular, Prysmatic Labs launched a test network called Sapphire for Ethereum 2.0 on July 2, which is based on Casper’s PoS protocol. However, the price of the second largest cryptocurrency has not followed the upward trend indicated by the fundamentals. Instead, Ether has been fluctuating between $ 230 and $ 250 for over a month.
In an interview with Cointelegraph, Kevin Cheng, Chief Operating Officer of Cryptocurrency Exchange BigONE, suggested this The growth of Ether’s fundamental parameters has long-term effects, while the movement of cash can affect Ether’s price in the short term. Pierce Crosby, CEO of the TradingView charting platform, spoke to Cointelegraph about why DeFi growth didn’t affect Ether’s price:
“The recent DeFi boom has largely drawn on the interests of ‘existing’ ether investors or ‘Hodler’. As a result, there is very little new ‘demand’ for cash inflows compared to when a currency is traded in one new brokers / exchanges or similar trading channels, there is a new net amount of cash for a certain value. DeFi is just an additional app for existing investors. It is not a mass market product. “
The options Ether and DeFi are two very important factors for the cryptocurrency market, but are still at an early stage of implementation, according to Chris Thomas, Head of Digital Assets at the online banking company Swissquote. He said to Cointelegraph: “De-Fi is extremely small, but only with a small suggestion from cryptocurrency traders and still a very high risk – proven by the problems Maker was suffering on March 12th. Therefore, everyone who is currently dealing in the De-Fi area is taking a big risk.“”
Is it a question of correlation?
According to a report by the analysis company Skew in November 2019 Ether has been the closest correlated cryptocurrency to Bitcoin for two years. The situation appears to have remained unchanged given the latest data provided by the same company on June 23. The latest statistics from Skew show that the volatility of the ETH price is almost identical to that of BTC and the volatility difference between the two cryptocurrencies is close to zero. According to Skew, The volatility of the ether options market is only 2% higher than that of Bitcoin. For comparison, during the panic on Black Thursday, the ether rate was 45% more volatile than that of Bitcoin.
In addition, Coin Metrics data show that the correlation between the top two cryptocurrencies has increased. More accurate, The 30-day ETH / BTC ratio reached 0.88 at a time – stronger than any other asset and higher than in the same period last year.
Since ether and other altcoins are not well isolated from the volatility of the bitcoin market, Ether can experience huge price fluctuations when Bitcoin sets in motion, which could mess things up in DeFi space and cause panic and uncertainty for Ether. While bitcoin may have increased volatility at first, it could eventually be overtaken by ether. Lucas Outumuro, senior analyst at Cryptocurrency Intelligence Company IntoTheBlock, commented on the correlation and told Cointelegraph:
“The low volatility of ETH is certainly related to its high 30-day correlation with Bitcoin, which currently has a correlation coefficient (R) of 0.85. In addition, ETH currently has a high correlation of 0.60 with Bitcoin SP 500 and has shown that it increases when the markets react negatively to coronavirus news, as in March. “This indicates the likelihood that increased volatility will decrease if a similar sale occurs. “
Thomas also agrees that Ether’s low volatility is due to low overall crypto market numbers, adding: “The growing institutional interest comes from the United States, but is currently focusing more on the volatile stock markets, which is why it has distracted the view from the crypto spaceThe low volatility of ether could, according to Crosby, mean that there is currently less speculation on the market:
“The low volatility of Ether versus Bitcoin means that there is overall less speculative trading in Ether, which makes sense. The volatility itself includes large bets ‘for’ or ‘against’ currencies over a wide range, which makes sense for Bitcoin ( think of the maximalists compared to the defenders of classic financial theses). The ETH should remain comparatively flat – by nature. “
According to Dmytro Volkov, Chief Technology Officer at Exchange CEX.IO, low summer volatility is a traditional pattern in all financial markets. When he spoke to Cointelegraph about Ether’s price movements, he drew a parallel between crypto and traditional markets: “However, we expect changes in this pattern in the near future as the market expects the arrival of key institutional investors.“”
A wait and see approach
Although the popularization of stablecoins has led to an increase in fundamental indicators of ether, this could also reduce volatility. In fact, before finding a direction for these funds to close a position in Bitcoin or Altcoins, traders are now transferring money to stablecoins in anticipation of a market investment.
On the other hand, despite the relatively low volatility due to user expectations regarding the release of the Ethereum 2.0 update and the gateway to a, Ether seems to feel a little stronger than the rest of the market PoS algorithm. Analysts are seeing an increase in the number of ether wallets and the active accumulation of coins by miners. Ethereum has also seen rapid transaction volume and daily rates exceed that of Bitcoin. Also, Active addresses increase towards 400,000, and more ETHs leave the exchange when users accumulate or block values in DeFi protocols.
Outumuro told Cointelegraph that while DeFi has increased demand for the use of the Ethereum blockchain, the amount of ETH consumed by these transactions is still relatively low, which may be a reason for this increase in Use no impact still has its price: “However, if the trend accelerates further, the increasing demand for the use of the ETH blockchain should have a positive impact on the price of ETH.Outumuro spoke about the impact of Ether’s options and suggested:
“Ether options are unlikely to affect the price of ETH because they trade contracts instead of real ETH. Because they use very high leverage, it is difficult to measure real demand behind derivatives.”
Skew also found that the current size of the ether options market is similar to the size of Bitcoin in December 2018.. Since then, traders’ open interest in Bitcoin options has increased significantly.
According to Andreas Berg, CEO of Cryptocurrency Exchange Buytex, the growth of ether options and the fundamental characteristics of Ethereum were likely mainly due to investors taking active positions in cryptocurrency and waiting for short-term volatility, said Cointelegraph: “The rise of the DeFi market has caused Ethereum’s fundamentals to skyrocket, and retailers have made believe that ETH is optimistic in the long runIn fact, the volume of ether long positions in Bitfinex reached a record high of $ 435 million. Berg added:
“On the other hand, many traders have chosen a hold approach that can also contribute to Ethereum’s price stability. This shows that the cryptocurrency market is heavily dependent on macro factors.”
The calm before the storm?
The volatility of the cryptocurrency market remains low. However, a strong price movement is expected soon. Many analysts highlight the current decline in volatility as a sign of an impending price hike. Some of them, like Dan Tapiero, They are convinced that a long period of consolidation with low volatility often ends in a sharp increase in volatility. Tapiero believe Ether can exceed $ 500 due to favorable technical and basic factors. Meanwhile, trader and analyst Michael Van de Poppe shared a similar opinion Ether could hit $ 300 in late summer.
Chris Burniske, partner of the venture capital firm Placeholder, claimed that Ether has outperformed Bitcoin over the years in terms of growth. This gap can be widened given Ether’s lower market capitalization and fundamentals.
The analysts disagree about the greater impact of DeFi’s market growth on the ether price. Joseph Todaro, managing partner of Blocktown Capital cryptocurrency investment fund, tweeted on June 16: “DeFi will likely help bring ETH to a $ 1 trillion market cap“”
Related: Bitcoin price stagnates, but not as bad as it sounds
Ari Paul, chief information officer at BlockTower – a cryptocurrency investment firm – highlighted the possibility of liquidity mining firing a bubble in the DeFi room. Liquidity mining refers to the delivery of government tokens to include assets in a loan log. Such as, Cryptocurrency users can expect ETH to be more volatile than the BTC, especially if Bitcoin news runs out after the third cut in half on May 11th.
Along with ether options, the high level of institutional activity that has been confirmed by the Chicago Mercantile Exchange – also known as CME for its acronym in English – and where requests for BTC options have been multiplied by ten in the past month could bring a new one dynamically for the ETH market. The $ 1.1 billion deribit platform showed even more impressive values.
Given the significantly smaller size of the cryptocurrency market compared to the traditional market, these values may indicate greater pressure from major cities, which could potentially lead to large price fluctuations. Also, If countries emerge from virus-related blockages and their economies revive, the cryptocurrency market will follow suit.
Volatility decreases with the introduction of blockchain technology
According to J. R. Forsyth, founder and CEO of the Blockchain Onfo project, price volatility tends to decrease with increasing number of market participants over time, as he told Cointelegraph: “Although significant advances and developments have been made (or could be announced) in these ecosystems, currencies have remained relatively stable. This is due to the growing user base“”
The low volatility of ether also suggests that market participants do not expect strong catalysts that affect the prices of the major cryptocurrencies. At the same time, the stabilization of ether prices enables investors to analyze all factors associated with the introduction of Ethereum 2.0 in order to take long-term positions. Crosby added that the lack of volatility shows that people are looking at the broader stock market and the dollar index to get an idea of where the crypto market might go next:
“Many people see the correlation with the classic markets and are therefore on the defensive. The US stock market is generally recovering to an all-time high, but interest in cryptocurrencies is still high. I haven’t seen this break since April.”
According to Heinrich Zetlmayer, founder and general partner of Blockchain Valley Ventures, a growing number of other business-oriented blockchain such as Hyperledger, Corda and Tezos could also contribute to great uncertainty about the future of ether pricing, Cointelegraph: “We are still on time and Ethereum’s pricing logic has probably been the same as for Bitcoin so far“”