Ethereum ETH/USD has been outperforming Bitcoin BTC/USD following the U.S. Federal Reserve's decision to cut its Federal Funds rate by 50 basis points last Wednesday.
What Happened: Since the central bank's first rate cut in four years, Ethereum's price has surged over 16%, significantly outpacing Bitcoin's 6% increase during the same period, The Block reported.
Market data from Coinglass shows that the Ethereum perpetual futures funding rate has flipped positive since the rate cut, currently standing at 0.0082%.
This signals a shift in market sentiment, indicating increased bullishness toward Ethereum.
According to Ruslan Lienkha, chief of market at crypto exchange YouHodler, this positive funding rate reflects heightened demand for leveraged long positions in Ethereum.
However, Lienkha warned of potential risks associated with over-optimism in the market.
“While funding rates typically indicate medium to long-term trends in commodity markets, crypto funding rates are notably more volatile,” he said.
He also emphasized that opening short positions in anticipation of a long squeeze may be too risky at this time due to the heightened market volatility.
Also Read: China Controls 55% Of Bitcoin Hashrate Despite Crypto Ban, But The US Is Catching Up
Why It Matters: While Ethereum continues to surge, stablecoins have become a critical component in the global cryptocurrency landscape, particularly in Eastern Asia.
According to a Chainalysis report, the region accounts for 8.9% of the global cryptocurrency value, receiving more than $400 billion in on-chain value over the past year.
Stablecoins play a crucial role in this market, as they provide a stable digital currency alternative, especially in countries where fiat currencies face devaluation and high inflation.
Hong Kong, in particular, has seen significant growth in cryptocurrency activity, with an 8.5% year-over-year increase.
The region now ranks 30th on the global crypto adoption index.
A key factor in this growth has been Hong Kong's introduction of a new regulatory framework for virtual asset trading platforms (VATPs) in June 2023.
This framework, which includes strict consumer protection and anti-money laundering standards, has facilitated retail investors’ access to crypto, with stablecoins accounting for 40% of the total value received in Hong Kong.
Meanwhile, Chinese investors are turning to over-the-counter (OTC) platforms to move funds amid stringent domestic regulations. As a result, stablecoins have emerged as a vital tool for those navigating these restrictions.
The stablecoin market now boasts a market cap of $172 billion, according to Coingecko.
As stablecoins continue to gain popularity in regions facing economic instability, Maruf Yusupov, co-founder of Deenar, highlighted the asset's potential to disrupt traditional financial systems.
“Notably, stablecoin adoption is concentrated in regions where fiat currencies are constantly devalued with high inflationary rates. In most emerging markets, stablecoins are gradually replacing fiat because of lower barriers to entry, low cost and ease of use,” Yusupov said, in a note sent to Benzinga.
However, Yusupov also cautioned that the growth of stablecoins could attract more regulatory oversight and new forms of fraud. “The more stablecoins grow, the more oversight their issuers and users must expect. Central banks will do what they can to limit the impact of stablecoins on fiat dominance,” he said.
Yusupov also pointed out that while stablecoins offer revolutionary potential, market participants should prepare for possible headwinds, including regulatory challenges and scams.
What’s Next: The evolving dynamics of the crypto market will be a central focus at Benzinga's Future of Digital Assets event on Nov. 19, where experts will gather to explore the future of cryptocurrency, regulation, and market resilience in the face of volatility.
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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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