Ethereum Price Hits 2-Year High as ETH Futures Open Interest Tops $1.5B

https://cointelegraph.com/news/ethereum-price-hits-2-year-high-as-eth-futures-open-interest-tops-15b

Ethereum price surged to a two-year high at $445 and record open interest on ETH futures hints that the rally will continue.

Today the price of Ethereum’s Ether (ETH) hit a two-year high according to data from crypto trading terminal Crryptowatch. Despite the breakout to $445, open interest on ETH futures remains steady at a new record high of $1.5 billion.

ETH-USD 4-hour chart

ETH-USD 4-hour chart. Source: TradingView.com

The record high open interest on ETH futures hints that traders remain bullish and further gains could be seen over the coming days.

In recent months, Ethereum has seen strong momentum due to the explosive growth of the Decentralized Finance sector. The demand for Ether led to a sharp increase in gas (transaction fees) and this possibly added to demand for Ether.

On Aug 11, Santiment reported that Ether fees reached an all-time high in both ETH and USD terms. Since users have to purchase ETH to pay fees to miners, it could have acted as a catalyst for the rally. Researchers at Santiment wrote:

“On Tuesday, #Ethereum fees reached all-time high values in both $USD and $ETH. Since this record breaking statistic was hit, the #2 ranked market cap #crypto asset has risen +13% and sentiment has remained positive. This is an indication that although traders obviously prefer fees to be lower, the ramifications on people’s willingness to transact via an asset they believe in (at least in the short-term) are fairly minimal.”

Following Ether’s breakout from a two-year range, traders generally anticipate a stronger uptrend ahead. A well-known trader called “Satoshi Flipper” said there is no hard resistance for ETH until $780. He said:

“2 years ETH spent in that range and we finally broke out No hard resistance until $780. This run has literally just started.”

Another pseudonymous trader known as “Byzantine General” said the open interest of Ethereum is still “massive.” He suggested that traders might still be anticipating a bigger price movement. He noted:

“ETH open interest is still absolutely massive. So that means… That… We haven’t even seen ‘the’ big move yet?”

Total ETH Options Open Interest

Total ETH Options Open Interest. Source: Skew.com

Typically, when a cryptocurrency sees a major price movement, the open interest drops. This is because large moves often lead to short and long squeezes on the asset which are then followed by a period of consolidation.

For Ether, however, the open interest has climbed to over $1.5 billion, according to data from Skew. Huobi and OKEx alone have $761 million worth of ETH futures contracts currently open.

What’s next after a two-year high

Buoyed by various factors, including DeFi, institutional adoption, and an overall improvement in market sentiment, Ether has surged 235% year-to-date. The Cryptowatch team said:

“Ethereum breaks up to a new 2-year high of $444. ETH is up 87% in the last 25-days, nearly 400% since its March low and 235% year-to-date.”

In the medium-term, traders expect the altcoin to test higher resistance levels, especially if the Ethereum blockchain continues to see high user activity with sentiment driven by ETH 2.0.

Ether Price Hits 2020 High: Key Reasons Why ETH Outperforms Others

https://cointelegraph.com/news/ether-price-hits-2020-high-key-reasons-why-eth-outperforms-others

The price of Ether has hit a new yearly high at $322, as three key factors appear to be catalyzing the rally.

The price of Ethereum (ETH) has reached a new yearly high at $322, surpassing the previous high achieved in February 2020. Three key catalysts are seemingly behind the ETH rally.

Since early 2020, the anticipation of Ethereum 2.0, which would enable staking for users, pushed the demand for ETH upward. Staking allows users to receive incentives when miners are eliminated from the Ethereum network. A proof-of-stake consensus algorithm does not need miners on the protocol. Instead, users with a stake in ETH collectively process data and information through staking. In return, they receive rewards in the form of ETH.

After the so-called “Black Thursday” correction on March 13, when ETH briefly dropped below $90, the DeFi market began to expand rapidly. When new protocols, like Compound, introduced their incentive systems, the demand for decentralized finance increased even further. In May, less than $1 billion was locked in DeFi platforms. As of July 26, more than $3.75 billion is locked across various DeFi protocols.

The optimism around DeFi and Ethereum 2.0 eventually led to Ether spot and options markets setting record high volume and open interest. Since the start of the second quarter, the ETH options market has continuously soared to new highs in terms of trading activity. Consequently, it intensified the uptrend of ETH in a short period.

Cryptocurrency on-chain market data analysis firm Santiment said ETH broke out of $300 for the 42nd time in history. An upsurge above $350 would be significant, according to researchers, because it has only happened three times in the past. Santiment stated in a tweet: “It’s clear that #Ethereum is sitting in its ‘sweet spot’ where the most polarization has historically unfolded (between the $200 and $300 levels) during its five year history.”

Times the price of Ether surged above every major price level

Times the price of Ether surged above every major price level. Source: Santiment

Based on the technical market structure of Ether, some traders said that $308 and $400 remain as the key short-term resistance levels. Michaël van de Poppe, a Cointelegraph contributor and a full-time trader at the Amsterdam Stock Exchange, said in a tweet that ETH has increased higher than expected: “Going a little higher than the plan initially was, a month ago. But we’re doing fine. Might be on the resistance at the $308 level. But that’s basically final hurdle before $400+, to me.”

Reason #1: DeFi exploding to new highs

The first and perhaps biggest catalyst of the Ether uptrend in recent months has been the exploding DeFi market. Since May, the total value locked in DeFi protocols has increased nearly four-fold to $3.75 billion. Popular protocols, like Compound, Maker, Aave, Synthetic and Curve Finance, have seen a substantial increase in users since mid-June.

The DeFi market has been expanding at such a rapid pace that the Ethereum blockchain network is struggling to keep up. When users utilize DeFi platforms, they need to send data in the form of transactions and smart contracts. In most cases, users have to utilize decentralized exchanges to purchase various tokens.

In the past month, the Ethereum blockchain network has become overcrowded. As the network clogs, users are required to pay higher gas or transaction fees to process their payments or smart contracts. John Todaro, the head of research at the institutional trading platform TradeBlock, said on Twitter that the growth of DeFi would push the price of ETH higher in the long-term:

“Look back to a report we published in 2019 around the impact DeFi could have on #Ethereum demand. We have not seen that run-up in $ETH price yet, but there is no doubt the rapid growth in demand for DeFi will push ETH price higher longer term.”

The DeFi craze has also been fueling other submarkets within Ethereum. For example, Set Protocol marketing lead Anthony Sassano pointed out that the weekly dex volume has increased to $1.5 billion. Other key markets within Ethereum have started to set new all-time highs on various metrics as a result. 

In the past year, total value locked in DeFi protocols has risen from $500 million to $3.4 billion. Sassano explained that it shows exponential growth in a short period. He noted: “There was $3 billion locked in DeFi just 2 days ago which means that $400 million has entered the system since then – it took DeFi ~18 months to go from $0 to $400 million the first time!”

Reason #2 and #3: Ethereum 2.0 with rising options and spot demand

Especially since the beginning of the second quarter of 2020, the Ethereum market has seen high options and spot demand. Previous rallies have been led by the futures market. The funding rate of Ether during the February 2020 peak was hovering at 0.2% on BitMEX. That means long holders had to incentivize short holders with substantial fees due to market imbalance. 

During the recent rally, the funding rate of Ether futures contracts stayed relatively low. Despite a 30% increase in the past five days, the funding rate of ETH on BitMEX is well below 0.2%. It is likely due to the spot and options market playing a big role in ETH’s ongoing rally.

On July 24, the Deribit team said it had reached a record high for ETH options volume and open interest. Deribit accounts for 93% of the Ether options market in terms of open interest, tweeting: “We have a new record high for ETH Options volume and open interest! With a peak 24hr volume of $49 million, the Deribit ETH options OI sits at $241 million (and currently 93% of the global Ethereum market share)!”

Santiment researchers also noted ETH does have room for additional growth, relative to the performance of leading altcoins. Cryptocurrencies like Chainlink’s LINK have hit new highs in July, significantly outperforming top crypto assets. Possibly due to the lack of involvement of the futures market in the Ether rally, some analysts see a room for a bigger rally for ETH. Santiment stated on Twitter:

“The top 100 market cap #blockchains in the past 30 days show that $ETH still has a long way to go to catch most other #altcoins. This is a positive sign for current #Ethereum holders, currently +16.3% in the last 30d vs. an avg. top 100 return of +32.7%.”

In the longer-term, Ethereum 2.0 could act as a newfound catalyst, especially as ETH approaches Q4 2020. Earlier this week, Ethereum developers, led by fork coordinator Afri Schoedon, said that the official testnet launch of Ethereum 2.0 would begin on August 4. 

The first phase of Ethereum 2.0 is called the beacon chain. For it to be activated or launched, developers need to develop testnets to mimic the conditions of the beacon chain. Stable and long-term testnets are necessary to ensure a seamless launch of Ethereum 2.0, Schoedon wrote on GitHub. The Medalla testnet is expected to be the final testnet before the mainnet launch, as Schoedon said:

“Before such a mainnet can be launched, we need testnets that mimic mainnet conditions as good as possible. This requires us to have stable, long-term, and persistent testnets up and running that are supported by not only one client but multiple clients, ideally, all clients.”

Positive progress on Ethereum 2.0, specifically on the Medalla testnet, could further boost the sentiment around Ether in the coming months. A confluence of rapidly-growing DeFi market and growing demand on the spot and options market, combined with Ethereum 2.0 hype, appear to be fueling a strong ETH rally.

Two Crypto Exchanges Paid High Ethererum Fees to Ensure Quick Withdrawals

https://cointelegraph.com/news/two-crypto-exchanges-paid-high-ethererum-fees-to-ensure-quick-withdrawals

Data shows two major crypto exchanges covered surging Ethereum fees to ensure quick withdrawals for users.

Data provided exclusively to Cointelegraph by blockchain and crypto analytics firm Flipside Crypto shows that Binance and OKEx paid large fees for Ether (ETH) withdrawals when the Bitcoin price crashed to $3,600 on March 13, a day dubbed as “Black Thursday” among investors in the cryptocurrency market.

At the time, the Bitcoin (BTC) price dropped by around 50 percent in a single day, causing the price of Ether to plunge to as low as $85 across major exchanges.

As an unprecedented cascade of liquidations pushed the entire market downward in a short period of time, requests for withdrawals on exchanges also surged as investors began to demonstrate a high level of fear.

Amidst all the panic, Binance and OKEx, two of the largest crypto exchanges paid, higher than the average price of “gas”—a term used to describe fees paid on the Ethereum blockchain network to transfer data or payments—to seamlessly process user withdrawals.

Covering gas fees supports Binance and OKEx’s “user first” philosophy

As shown in the Flipside Crypto chart exclusively shared with Cointelegrah, the amount of gas paid on the Ethereum network by Binance, Coinbase, OKEx, Kucoin, and Kraken indicates that Binance and OKEx paid up to 400 percent higher fees to ensure withdrawal transactions are included in the following block.

Gas fees paid on Ether withdrawals by top exchanges. Source: Flipside Crypto

Flipside Crypto CEO Dave Balter told Cointelegraph:

“Binance and OKEx appear to be paying a constant rate significantly above the prevailing market price, as evidenced by the yellow and red parallel lines on the graph. This ensures that their transactions have the best chance of being included in the next block. When the price of gas spiked, around 8AM UTC on March 12th, they both had to compute a new threshold for their transactions to go through.”

Most exchanges have a fixed fee rate for trading, deposits, and withdrawals. Since a significant spike in on-chain activity on major blockchain networks like Ethereum and Bitcoin rarely occurs, exchanges typically maintain a stable withdrawal cost over a prolonged period of time.

As an example, on Binance, the standard fee for Ether withdrawals is 0.003 ETH, which is equivalent to around $0.57.

Apart from blockchain network fees, withdrawal fees on exchanges also cover a variety of operations on the exchange side such as costs involved in security, maintenance, and automated audits.

When an exchange pays an unusually high fee to process a withdrawal, it decreases the amount of revenue the exchange obtains from it to finance all of its other operations that are needed to settle withdrawal requests.

Not every crypto exchange paid the way for users

Coinbase and Kraken, however, appeared to be actively predicting gas costs in real time and adjusting fees based on changes of user activity on the Ethereum network. 

Flipside Crypto’s Machine Learning Engineer Will Price told Cointelegraph that this may have led users to wait a few blocks until their withdrawals were fully processed, potentially causing some delay. Price said:

“Coinbase and Kraken appear to be continuously monitoring the network and updating their gas prices accordingly, as seen in the blue and pink lines on our graph. If these predictions turn out to be inaccurate, then users may have to wait a few extra blocks for their transactions to be processed. These few extra seconds could make a big difference for users attempting to arbitrage prices across exchanges.”

Whether exchanges would have to pay high fees following the launch of ETH 2.0 and the anticipated transition from the proof-of-work (PoW) to proof-of-stake (PoS) consensus algorithm remains to be seen.

Upon the shift, fees on the Ethereum network are expected to drop substantially from current levels. This means the next time congestion builds up on the network, exchanges may not have to cover the fees on behalf of their users.

Why Ethereum locked in DeFi plunged $600m after intense 57% ETH drop

https://cryptoslate.com/why-ethereum-locked-in-defi-plunged-600m-after-intense-57-eth-drop/

The total amount of Ethereum (ETH) locked in decentralized finance (DeFi) platforms plunged by more than $600 million since February 16. It coincided with a 57 percent drop in the price of ETH from $280 to $120.

DeFi platforms like MakerDAO have gained significant popularity in recent months by allowing users to issue loans on the Ethereum blockchain network with relatively high yearly returns.

DeFi loans can be liquidated too when Ethereum price drops

On a DeFi platform, borrowers are required to put up Ethereum as collateral to obtain loans. The collateral is made in Ethereum terms, which means that when the price of ETH drops, the value of the collateral declines in tandem.

When the price of Ethereum abruptly drops by a large margin, it requires borrowers to put up more Ethereum as collateral to reduce the risk of having their loans liquidated.

Ethereum is down 27% in 4 days: here’s why it’s crashing harder than other cryptocurrencies
Related: Ethereum is down 27% in 4 days: here’s why it’s crashing harder than other cryptocurrencies

But, when Ethereum’s value plunges by 30 to 50 percent within a short time frame, it makes it difficult for borrowers to make up for the lost value of Ethereum with more collateral.

For that reason, when the unexpected drop in the price of bitcoin on March 12 to $3,600 occurred, CryptoSlate reported that millions of dollars worth of DeFi contract liquidations were recorded.

At the time, Tushar Jain, a managing partner at cryptocurrency investment firm Multicoin Capital, said that the entire DeFi ecosystem was at risk of liquidation within a 24-hour span. Jain emphasized that he is concerned if the DeFi ecosystem as a whole is sustainable.

He said:

“I am worried that DeFi cannot be sustainable if the whole ecosystem could get liquidated in less than 24 hours. That was a real risk today.”

Since around $10 million worth of loans were liquidated across major DeFi platforms, the total amount of collateral in Ethereum in the DeFi ecosystem dropped from $1.2 billion to $567 million.

The DeFi market essentially saw an outflow of 57 percent within less than a month. It brought the total value locked in the DeFi ecosystem back to mid-2019 levels.

ethereum defi
Ethereum locked in DeFi plunged to mid-2019 levels (source: defipulse.com)

So what can be done to sustain DeFi?

The single biggest merit of using a DeFi platform is that it is based on top of a decentralized protocol. All financial activities including the issuance of loans are done in a peer-to-peer manner, without the involvement of central entities.

However, the advantage of DeFi could also be a real risk that could shut down the entire market upon flash crashes of major cryptocurrencies if no precautionary measures are taken.

Some prominent investors, like Jain, proposed the implementation of an industry-wide circuit breaker for that reason in case of extreme events that crashes the cryptocurrency market.

Jain noted:

“Today’s price moves in crypto are a strong argument for industry wide circuit breakers. The crypto markets structurally broke today & leading exchanges need to work together to prevent a repeat.”

Whether a severe short-term market correction as seen on March 12 would happen again remains unclear. But, during a flash crash-like pullback, the DeFi ecosystem becomes vulnerable to a cascade of liquidations.

For more news on decentralized finance, check out our DeFi section.

The post Why Ethereum locked in DeFi plunged $600m after intense 57% ETH drop appeared first on CryptoSlate.