Lately, Bitcoin‘s (BTC) price has seen significant ups and downs, making it hard for the cryptocurrency to stay above the $70,000 threshold. This instability has led some investors to wonder if Bitcoin‘s current price surge can last.
According to market analyst Charles Edwards, who is a co-founder of Capriole Invest, the Decentralized Finance (DeFi) project Ethana Labs (ENA) may greatly prolong and intensify Bitcoin’s ongoing bull market, reaching even greater peaks.
On Social Media platform X, Edwards recently proposed that Ethena’s initiatives, including limiting excess leverage in Bitcoin derivatives and decreasing the availability of spots, could significantly boost Bitcoin’s price for an extended timeframe.
Bitcoin Bull Market Boost
To provide further context as to why Edwards is suggesting this possibility, on April 4th, Ethena Labs announced its intention to engage in a cash-and-carry trade involving Bitcoin.
Based on the protocol’s announcement, Ethena Labs has the ability to mitigate risk and offer a more dependable support for their product through purchasing and selling Bitcoin in the market.
Edwards emphasizes that one important aspect of Ethena’s role is limiting excessive borrowing in the Bitcoin derivatives sector. This action helps reduce the likelihood of reckless trading and potential market volatility.
Another possibility: Ethena’s purchase of Bitcoin from the market may lessen the urgency for sellers, thereby boosting Bitcoin’s value and potentially extending the ongoing bull market.
The protocol pointed out that Bitcoin’s derivative markets provide greater flexibility in terms of scalability and trading volume compared to Ethereum (ETH). This feature is believed to make Bitcoin an attractive choice for delta hedging, a risk management technique used by Ethena.
With a $25 billion Bitcoin market providing potential for delta hedging, Ethena’s synthetic dollar product, USDe, now has greater capability to expand. Ethena Labs stated in their release that:
Over the past year, the open interest in Bitcoin (BTC) on major exchanges, excluding CME, has surged from $10 billion to $25 billion. At the same time, the open interest in Ethereum (ETH) has risen from $5 billion to $10 billion. The Bitcoin derivative markets are expanding at a quicker rate than Ethereum and provide superior scalability and liquidity for delta hedging strategies.
Weighing The Risks
Edwards is hopeful that Ethena will contribute to Bitcoin’s rally, but a user has pointed out potential drawbacks. Edwards concedes that risks related to execution, like loss of assets through custodial issues or delta neutrality problems, could lead to negative consequences.
Edwards points out that among all risks, custody risk holds the greatest importance in this particular situation. Nevertheless, he emphasizes that any potential drawbacks would probably be temporary, while market influences will eventually determine Ethena’s yearly percentage return on investment (APY).
Simply put, Ethena’s strategy of restraining borrowing for futures trading and decreasing Bitcoin supply in the spot market may help boost Bitcoin’s price and potentially prolong the ongoing bull market trend.
At present, Bitcoin’s value has dropped noticeably, reaching around $68,800. This represents a 4.3% fall from its price on Monday.
At the same time, the native token of Ethena, called ENA, has mirrored the general market decline, dropping by 4% due to Bitcoin’s price drop. Currently, you can buy one ENA for $1.22.
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2024-04-10 03:04