Autor Cointelegraph By Marcel Pechman

TVL, network outages, or derivatives: What's behind Solana's (SOL) 60%+ drop?

TVL, network outages, or derivatives: What's behind Solana's (SOL) 60%+ drop?

Uverejnil používateľ | jan 31, 2022 |

The past couple of months have not been kind to cryptocurrencies. The sector’s aggregate market capitalization plunged 50% from a Nov. 10 peak at $2.87 trillion to the current $1.44 trillion. Solana’s (SOL) downfall has been even more brutal, presently trading at $88 after a 66% correction since its $260 all-time-high.Pinning the underperformance exclusively to the recent network outages seems too simplistic, and it doesn’t explain why the accelerated decoupling over the past week, so let’s take a look at what might be going on. Solana/USDT at FTX (blue) vs. Total crypto capitalization (orange). Source: TradingViewThe Solana network suffered four incidents in the span of a few months. According to the project’s developers, a sudden spike in the number of computing transactions caused network congestion which crippled the network. Interestingly, the network struggles with congestion since the developers advertise a 50,000 transaction per second (TPS) capacity. The latest incident on Jan. 7 has been attributed to a distributed denial-of-service (DDoS) attack, but data shows us that network attacks are less relevant than dApps use. Cyber Capital chief investment officer Justin Bons criticized the network’s security, mentioning that DDoS can be used to “temporarily gain proportional-staked control over the network by attacking other stakeholders.”Sergey Zhdanov, chief operating officer of crypto exchange EXMO UK, also said DDoS attacks and similar outages “don’t really influence the trust of the network” and should be disregarded. Zhdanov makes a point comparing Ethereum network fees surpassing $50 as a similar hiccup, but not significant enough to cause investors to abandon it for good.Solana’s main decentralized application metric started to display weakness earlier in November after the network’s total value locked (TVL), which measures the amount deposited in its smart contracts, began to linger at $15 billion.Solana network Total Value Locked, USD. Source: DefiLlamaNotice how Solana’s dApp deposits saw a 44% decrease in 3 months, as the indicator reached its lowest level since Sept. 8. As a comparison, Fantom’s TVL currently stands at $9.5 billion, a 79% increase in 3 months. Another dApp scaling solution competitor, Terra, saw a 60% TVL hike to $16 billion.Not even the $10 million raised by Solana’s decentralized finance (DeFi) application Hubble Protocol in early January was enough to recover investors’ confidence. Crypto heavyweights like Three Arrows, Digital Currency Group, Delphi Digital and Crypto.com Capital backed the launch of the crypto-backed stablecoin and zero-interest borrowing platform.TVL and the number of active addresses dropped Total value locked is no longer the primary metric that reflects strong fundamentals, meaning a 66% price correction has other factors at play than just a reduced TVL. To confirm whether dApps use has effectively decreased, investors should also analyze the number of active addresses within the ecosystem.Solana dApps 30-day on-chain data. Source: DappRadarAs shown by DappRadar data on Jan. 28, the number of Solana network addresses interacting with most decentralized applications dropped by 18% to 32%, except for the non-fungible token (NFT) marketplace Magic Eden.The lesser interest on Solana dApps was also reflected in its futures open interest, which peaked at $2 billion on Nov. 6, but recently faced a steep correction.Solana futures aggregate open interest. Source: CoinglassThe above chart shows how derivatives traders’ interest in Solana plunged 75% in less than 3 months. That is especially concerning because a smaller number of futures contracts might reduce the activity of arbitrage desks and market makers. For example, it is common for participants to self-limit their exposure to 20% of the asset volume or open interest.Derivatives data could be a consequence, but not the causeIt’s probably impossible to pinpoint the correlation and causation between SOL’s price drop, the decrease in the network’s dApps use, and the fading interest from derivatives traders. However, none of those indicators point to a price recovery anytime soon.The data above suggests that Solana holders should be less concerned about momentary outages and focus on the ecosystem’s use versus competing chains. As long as the ecosystem remains healthy, investors have no reason to lose trust due to temporary network outages.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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Bears target new lows for Ethereum as Friday’s $1.1B options expiry approaches

Bears target new lows for Ethereum as Friday’s $1.1B options expiry approaches

Uverejnil používateľ | jan 28, 2022 |

Ether (ETH) price tumbled below the $3,000 support on Jan. 21 as regulatory uncertainty continues to weigh down the sector and rumors that the United States Securities and Exchange Commission is reviewing DeFi’s high-yield crypto lending products continue to circulate. On Jan. 27, the Russian Finance Ministry submitted a crypto regulatory framework for review. The proposal suggests that crypto operations are carried out within the traditional banking infrastructure and that mechanisms to identify traders’ personal data are included.Further bearish news came as Ryan Korner, a top special agent from the United States Internal Revenue Service (IRS) Criminal Investigation’s Los Angeles field office, issued negative remarks during a virtual event hosted by the USC Gould School of Law. According to Ryan, crypto is the “future,” but ”fraud and manipulation are still rampant in the space.”Ether bulls are trying to determine whether the Jan. 24 drop to $2,140 was the final bottom for the current downtrend. This 47.5% correction in 30 days caused an aggregate of $1.58 billion in long futures contracts to be liquidated.Ether/USD price at FTX. Source: TradingViewNotice how Ether’s price has been downtrending for 75 days, respecting a channel that currently holds $2,200 as a support level. On the other hand, a 19% price increase from the current $2,500 to the $3,000 resistance would not necessarily mean a trend reversal.Curiously, call (buy) option instruments vastly dominate Friday’s $1.1 billion expiry, but bears are better positioned after Ether price stabilized below $3,000.Ether options aggregate open interest for Jan. 28 expiry. Source: CoinGlassA broader view using the call-to-put ratio shows an 82% advantage to Ether bulls because the $680 million call (buy) instruments have a larger open interest versus the $410 million put (sell) options. However, the 1.82 call-to-put indicator is deceptive because the price drop below $3,000 caused most bullish bets to become worthless.For example, if Ether’s price remains below $2,500 at 8:00 am UTC on Jan. 28, only $57 million worth of those call (buy) options will be available. That effect happens because there is no value in the right to buy Ether at $2,500 if it is trading below this level.Data suggests bulls are set for a significative lossBelow are the three most likely scenarios based on the current price action. The number of options contracts available on Friday for bulls (call) and bear (put) instruments vary depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:Between $2,200 and $2,400: 3,200 calls vs. 121,500 puts. The net result is $270 million favoring the put (bear) instruments.Between $2,400 and $2,700: 19,500 calls vs. 95,500 puts. The net result favors bears by $190 million.Between $2,700 and $2,900: 34,700 calls vs. 73,400 puts. The net result favors the put (bear) options by $110 million.This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.For instance, a trader could have sold a call option, effectively gaining a negative exposure to Ether above a specific price. But unfortunately, there’s no easy way to estimate this effect.Bears will try to hold ETH below $2,400Ether bears need a gentle push below $2,400 to score a $270 million profit on Friday. On the other hand, bulls would need an 8.4% price recovery from the current $2,500 to reduce their loss by 58%.Considering the bearish regulatory newsflow, Ether bulls are unlikely willing to add more risk right now. Therefore, bulls should concentrate their efforts to partially salvage this defeat by keeping Ether price above $2,500, resulting in a $170 million loss.January seems to have given Ether bears the upper hand in keeping the pressure on the price in the short term.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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Derivatives data suggests that Bitcoin’s $39K bounce was a mere blip

Derivatives data suggests that Bitcoin’s $39K bounce was a mere blip

Uverejnil používateľ | jan 27, 2022 |

Bitcoin (BTC) bulls are probably quite disappointed with how the start of 2022 has shaped up, especially since the cryptocurrency plunged over 20% in the first 25 days of the year. Even more shocking is the fact that the supposed $32,930 bottom on Jan. 21 was the lowest level BTC price had seen in six months, while equity markets as measured by the S&P500 reached an all-time high on Jan. 4. The sell-off in risk markets accelerated after the U.S. Federal Reserve announced its plan to raise interest rates in the coming months, a measure intended to hold back the escalating inflation. For example, Invesco China Technology ETF (CQQQ) traded below $58 on Jan. 22, which was a 20% drop from its peak on Nov. 12.Regulatory uncertainties continue to weigh on the sector as United States Congressman Patrick McHenry called the “inconsistent treatment and jurisdictional uncertainty” on crypto as a problem. McHenry essentially suggested that Congress should take crypto regulation away from executive agencies and courts.Bitcoin price recovered, but bulls are still in troubled watersBitcoin bulls have little to celebrate after the 12% partial recovery to $38,100 on Jan. 26. First, BTC price is down 35% over the past two months, and more importantly, if Bitcoin trades below $38,000 by the Jan. 28 monthly options expiry bears are set to profit by $350 million.Bitcoin options aggregate open interest for Jan. 28. Source: CoinglassAt first sight, the $1.52 billion call (buy) options overshadow the $760 million in put options, but the 1.96 call-to-put ratio is deceptive because the recent price drop will likely wipe out most of the bullish bets.For example, if Bitcoin’s price remains below $38,000 at 8:00 am UTC on Jan. 28, only $72 million worth of those call (buy) options will be available at the expiry. There is no value in the right to buy Bitcoin at $38,000 if BTC is trading below that price.Bears bag a $315 million profit even with Bitcoin near $39,000Here are the three most likely scenarios for the $2.3 billion options expiry on Jan. 14. The imbalance favoring each side represents the theoretical profit. In practice, depending on the expiry price, the quantity of call (buy) and put (sell) contracts becoming active varies:Between $35,000 and $37,000: 660 calls vs. 13,550 puts. The net result is $450 million favoring the put (bear) options.Between $37,000 and $39,000: 1,300 calls vs. 13,100 puts. The net result is $315 million favoring the put (bear) options.Between $39,000 and $41,000: 3,710 calls vs. 8,170 puts. The net result favors bears by $180 million.This crude estimate considers call options being used in bullish bets and put options exclusively in neutral-to-bearish trades. However, this oversimplification disregards more complex investment strategies.For instance, a trader could have sold a call option, effectively gaining a negative exposure to Bitcoin above a specific price. But unfortunately, there’s no easy way to estimate this effect.$40,000 is still a stretchIt might seem relatively easy to move Bitcoin price up by 3% and bring the expiry price above $39,000 on Friday’s expiry. However, considering the negative news flow regarding regulation and monetary policy tightening, bulls will likely have a hard time pulling it off.Therefore, if the current short-term negative sentiment prevails, bears could easily pressure the price down 3% from the current $38,100 down to $36,900 and secure a $450 million profit. In short, bears completely dominate Jan. 28 monthly options expiry, giving little hope for a $40,000 price recovery in the short-term.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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Is the bottom in? Data shows Bitcoin derivatives entering the ‘capitulation’ zone

Is the bottom in? Data shows Bitcoin derivatives entering the ‘capitulation’ zone

Uverejnil používateľ | jan 25, 2022 |

Analysts love to issue price predictions and it seems that nine out of 10 times they are wrong. For example, how many times did analysts say “we will never see Bitcoin back at X price again,” only to see it plunge well below that level a few months later? It doesn’t matter how experienced a person is or how connected in the industry. Bitcoin’s (BTC) 55% volatility must be taken seriously and the impact this has on altcoins is usually stronger during capitulation-like movements.I was undeniably wrong about how much crypto could fall from macro contagion. I remain bullish on the space as a whole and think it is the most important mega-trend of our times.I joined CT during 2018 and I will be here with you guys in the coming yrs, bull or bear.— Zhu Su (@zhusu) January 24, 2022For those unfamiliar with the case, on Dec. 7, Zhu Su’s Three Arrows Capital acquired $676.4 million worth of Ether (ETH) after its price collapsed 20% over 48 hours. Zhu went as far as saying that he would continue to buy “any panic dump,” despite acknowledging that Ethereum fees were unsuitable for most users.To understand whether there is still an appetite for bearish bets and how pro traders are positioned, let’s take a look at Bitcoin’s futures and options market data.Futures traders are unwilling to shortThe basis indicator measures the difference between longer-term futures contracts and the current spot market levels. A 5% to 15% annualized premium is expected in healthy markets and this price gap is caused by sellers demanding more money to withhold settlement longer.On the other hand, a red alert emerges whenever this indicator fades or turns negative, a scenario known as “backwardation.”Bitcoin 3-month futures basis rate. Source: Laevitas.chNotice how the indicator held the 5% threshold despite the 52% price correction in 75 days. Had pro traders effectively entered bearish positions, the basis rate would have flipped closer to zero or even negative. Thus, data shows a lack of appetite for short positions during this current corrective phase.Options traders are still in the “fear” zoneTo exclude externalities specific to the futures instrument, traders should also analyze the options markets. The 25% delta skew compares similar call (buy) and put (sell) options. The metric will turn positive when fear is prevalent because the protective put options premium is higher than similar risk call options.The opposite holds when greed is prevalent, causing the 25% delta skew indicator to shift to the negative area. Bitcoin 30-day options 25% delta skew. Source: Laevitas.chThe 25% skew indicator flipped to the “fear” area as it moved above 10% on Jan. 21. That 17% peak level was last seen in early July 2021, and curiously, Bitcoin was trading at $34,000 back then.This indicator might be interpreted as bearish when considering that arbitrage desks and market makers are overcharging for downside protection. Still, this metric is backward-looking and usually predicts market bottoms. For example, just two weeks after the skew indicator peaked at 17% on July 5, Bitcoin price bottomed at $29,300.Correlation with traditional markets is not so relevantIt is worth noting that Bitcoin has been on a downtrend for the past 75 days, and this is before the Federal Reserve’s tightening discourse on Dec. 15. Moreover, the increased correlation with traditional markets does not explain why the S&P 500 index peaked on Jan. 4, while Bitcoin was already down 33% from the $69,000 all-time high.Considering the lack of bears’ appetite to short BTC below $40,000 and options traders finally capitulating, Bitcoin shows little room for the downside. Furthermore, Bitcoin futures liquidation over the past week totalled $2.35 billion, which significantly reduced buyers’ leverage. Of course, there are no guarantees that $32,930 was the final bottom, but short sellers will likely wait for a bounce before entering bearish positions.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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A key Ethereum price metric hits a 6 month low as ETH falls below $3K

A key Ethereum price metric hits a 6 month low as ETH falls below $3K

Uverejnil používateľ | jan 21, 2022 |

Ether (ETH) price lost the $3,600 support on Jan. 5 as minutes from the Federal Reserve’s December FOMC meeting showed that the regulator was committed to decreasing its balance sheet and increasing interest rates in 2022.Even with that looming overhead, Ether has problems of its own, more specifically, the ongoing $40 and higher average transaction fees. On Jan. 3 Vitalik Buterin said that Ethereum needs to be more lightweight in terms of blockchain data so that more people can manage and use it.The concerning part of Vitalik’s interview was the status of the Ethereum 2.0 upgrade, which is merely halfway implemented after six years. The subsequent roadmap phases include the “merge” and “surge” phases, followed by “full sharding implementation.” When implemented, they will lead to an 80% estimated completion of the network upgrade, according to Buterin.Ether price at Coinbase, USD. Source: TradingViewFor those analyzing Ether’s performance over the past 3 months, the current pricing seems appealing because the cryptocurrency is currently down 34% from its $4,870 all-time high. However, this short-sighted view disregards the 560% gain Ether had accrued up till Nov. 10, 2021.Furthermore, the network’s adjusted total value locked (TVL) has dropped by 17% since Ether’s price peak.Ethereum network total value locked, USD. Source: DefiLlamaAs shown above, the network’s TVL dropped from $166 billion to the current $138 billion. Meanwhile, competing smart contract networks like Terra saw their TVL increase from $11 billion to $18.7 billion. Fantom also increased the value locked on its smart contracts from $5 billion to $9 billion.Due to network upgrade delays, worsening macroeconomic conditions and a 3-month long price correction, professional traders are clearly becoming frustrated and anxious.Ether futures are at the edge of turning bearishQuarterly futures are usually the preferred instruments of whales and arbitrage desks due to their settlement date and the price difference from spot markets. However, the contract’s biggest advantage is the lack of a fluctuating funding rate.These fixed-month contracts usually trade at a slight premium to spot markets, indicating that sellers request more money to withhold settlement longer. Therefore, futures should trade at a 5% to 15% annualized premium in healthy markets. This situation is technically defined as “contango” and is not exclusive to crypto markets.Ether futures 3-month annualized premium. Source: LaevitasAs displayed above, Ether’s futures contracts premium has come down from 20% on Oct. 21 to a meager 5.5%, just slightly above the neutral market threshold. Although the basis indicator remains positive, it reached the lowest level in 6 months.The crash below $3,000 on Jan. 10 was enough to drain any bullish sentiment and more importantly, the Ethereum network’s high fees and delayed upgrades might have scared away some investors. Currently, data shows little sign that bears are ready to take the helm. If this was the case, the Ether futures premium would have turned negative.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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