Market Wrap: Ether Outperforms Bitcoin; Sentiment Improves
Cryptocurrencies were mostly higher on Wednesday as bullish sentiment improves. Bitcoin was trading around $34,000 at press time, but is still down about 1% over the past week. Ether, however, has been outperforming bitcoin and is up about 3% over the past week.
- S&P 500: 4358.3, +0.34%
- Gold: $1802.4, +0.25%
- 10-year Treasury yield closed at 1.321%, compared with 1.36% on Tuesday
Ether takes the lead
“We believe Ethereum and its burgeoning ecosystem will be the growth catalyst for the rest of the year,” wrote crypto asset management firm 21Shares in a Tuesday newsletter.
“Recently, ethereum hit a two-week high in anticipation of an upcoming upgrade called EIP 1559 potentially going live on Aug. 4, which will make ethereum a scarce asset by reducing the circulating supply of ethereum at every transaction,” 21Shares wrote.
Goldman Sachs published a report on Tuesday stating that ether’s use cases currently possess the highest “potential,” being the most popular development platform for smart contracts.
Ether is attempting to break above the 50-day moving average for the first time since March. A confirmed breakout would yield further upside towards $2,800 resistance. Similar to bitcoin, ether is consolidating after a volatile sell-off in May.
The chart below shows ether’s outperformance relative to bitcoin and gold this year.
Bitcoin stuck in a choppy range
“Bitcoin continues to trade choppy and though we have seen an upward bias in the last few days it will take some work for BTC to break above the $42,000 mark,” wrote Pankaj Balani, CEO of Delta Exchange, in an email to CoinDesk.
“Any weakness in the broader markets or reduction in liquidity can cause sharp down moves in bitcoin, and we continue to see this reflected in options data as puts trade at a premium to calls for July and August expiry,” Balani wrote.
Other analysts expect bitcoin to level out as trading volumes continue to drop since the May sell-off. “We expect speculation in the spot and derivatives markets to stabilize for the foreseeable future, which will transpire into lower price swings,” 21Shares wrote.
Even though trading activity has been relatively quiet over the past month, institutional investors are busy assessing cryptocurrencies as an alternative to traditional assets.
“We have seen more large institutions inquiring about the space, including large banks and asset managers, as well as pension funds and even insurance companies,” wrote Florian Ginez, associate director of quantitative research at WisdomTree, in a Tuesday note.
“Most of these [institutional] actors are still very early in their journey to get the green light to start investing in bitcoin, but this shows large institutions are keeping their eyes open,” Ginez wrote.
The chart below shows a rising 90-day correlation between bitcoin and ether this year. However, bitcoin and ether have become less correlated with the S&P 500, which could offer diversification benefits to traditional investors, albeit with higher volatility.
Ethereum gas price drop
The Ethereum gas price has recently dropped to the lowest level since March 2020, according to crypto analytics firm CoinMetrics.
Though the decline corresponds with ether’s price drop, the downward trend in the gas price started in April, before ether’s price crash when the Ethereum gas limit was raised to roughly 15 million on April 22 and the Ethereum scalability solutions took off, according to CoinMetrics. Meanwhile, Flashbots has been helping to move decentralized finance (DeFi) arbitrage bots, which contributed to the high gas prices, off the Ethereum blockchain.
- Coinbase USDC rate: Coinbase, the biggest U.S. cryptocurrency exchange, rolled out the new deposit service last week for the dollar-linked stablecoin USDC at a rate of 4%, which is much lower than the 8% rate being offered by other crypto lending platforms. Coinbase’s below-market interest rate might reveal confidence in its own strength – a bet that customers will view the cryptocurrency platform as a safe place to keep their money.
- ETH locked in DeFi: The amount of ETH locked in DeFi applications dropped by 11.5% during the second quarter. However, the total dollar value of all crypto assets under management in DeFi apps remained steady over the same time period, which indicates a rise in other asset types such as stablecoins or governance tokens for DeFi collateral and liquidity.
- Alchemy on Polygon: Developers building on Polygon now have Alchemy’s toolkit at their disposal. Alchemy is an infrastructure provider that helps developers build decentralized apps (dapps) on Ethereum and other networks.
All digital assets on the CoinDesk 20 ended up higher on Wednesday.
Notable winners as of 21:00 UTC (4:00 p.m. ET):