In the past few days, the tempestuous rollercoaster ride of Bitcoin’s (BTC) price has become a hot topic amidst investors and market analysts. BTC’s ongoing struggle to establish dominance over the coveted $70,000 mark has cast doubts on the longevity of its current upward trend.
However, a shimmering ray of optimism is projected by market savant and Capriole Invest’s co-founder, Charles Edwards, who firmly contest that Ethena Labs’ decentralized finance (DeFi) protocol could be the catalyst needed to thrust Bitcoin’s bull market into uncharted territories.
Edwards has turned to the digital corridor of social media platform X (previously known as Twitter), to divulge his prediction. In his social declaration, Edwards alludes to Ethena’s current activities such as curbing over-leveraging in derivatives markets and diminishing spot supply, as potential propellers that could catapult Bitcoin’s price to new highs over a sustained period.
To offer a more extensive frame to his hypothesis, it’s worth referring to a major announcement from Ethena Labs on the 4th of April. The DeFi protocol expressed its strategy to partake in a cash-and-carry trade involving Bitcoin. Citing the announcement, Ethena Labs purportedly stated it could manage risks appropriately and provide a more robust buffer for its product by buying and shorting Bitcoin.
A notable point Edwards highlights is Ethena’s capacity to reign in over-leveraging in Bitcoin derivatives markets. Through this strategy, Ethena seeks to curb excessive betting and hypothetically halt potential market disruptions.
Furthermore, Ethena’s brinkmanship in taking spot supply off the trading deck may alleviate selling pressure, providing a firm base for Bitcoin’s valuation and elongating the life span of the bullish trend.
An interesting observation in the protocol’s note was Bitcoin derivative markets’ superior scalability and liquidity, especially when pitted against its close competitor, Ethereum (ETH). These factors make Bitcoin a presumably more enticing asset for delta hedging – a risk management tactic Ethena adopts.
Ethena’s synthetic dollar product, ‘USDe’, is expected to see considerable scaling with the availability of $25 billion worth of Bitcoin open interest, in readiness for delta hedging. By nearly tripling the amount of available BTC open interest from $10bn to $ 25bn in just one year, Ethena’s prospects seem promising.
Though Edwards paints a optimistic picture of Ethena’s potential impact on Bitcoin’s bull market, concerns about possible risks have reared their heads. He concedes execution risks, including matters of custody failure or delta neutrality failure, which could introduce adverse effects.
Edwards pegs custody risk as the paramount concern in this scenario but hastens to add that any detrimental consequences would most likely be ephemeral. He argues that ultimately, Ethena’s net annual percentage yield (APY) would be subject to the inexorable laws of market dynamics.
In essence, by imposing limitations on over-leveraging in future markets and lessening spot points of supply, Ethena could provide a substantial upswing in BTC’s price, giving the ongoing bull market the impetus it needs to endure.
At present, though, BTC’s price is facing a significant drop. It tumbled to $68,800, marking a 4.3% decrease compared to the previous day. Following suit, Ethena’s native token, ENA, has been stricken by the overall market downturn, seeing a 4% decrease mirroring BTC’s price movement. As of now, ENA is exchanging hands at $1.22.
