Ethena Labs (ENA) is poised to play a crucial role in sustaining Bitcoin’s bull market, according to market expert Charles Edwards. As co-founder of Capriole Invest, Edwards believes that Ethena’s decentralized finance (DeFi) protocol has the potential to propel Bitcoin to new highs. Edwards suggests that Ethena’s actions, including constraining over-leverage in derivatives markets and reducing spot supply, can help drive Bitcoin’s price higher for a longer period.
To support this possibility, Ethena Labs recently announced its intention to engage in a cash-and-carry trade involving Bitcoin. By buying and shorting Bitcoin, Ethena can manage risk and provide a more stable backing for its product. One of the key factors Edwards highlights is Ethena’s ability to prevent excessive risk-taking and potential market instability by constraining over-leveraging in Bitcoin derivatives markets. Additionally, by taking spot supply off the market, Ethena can reduce selling pressure and support Bitcoin’s price, thus prolonging the bull market.
Ethena Labs also notes that Bitcoin derivative markets offer superior scalability and liquidity compared to Ethereum, making Bitcoin a suitable asset for delta hedging. With $25 billion of Bitcoin open interest available for Ethena to delta hedge, the scalability of its synthetic dollar product, USDe, has significantly increased.
While Edwards’ statement remains optimistic, there are potential downsides that need to be considered. One user raised concerns about execution risks, such as custody failure or delta neutrality failure, which could have adverse effects. Edwards acknowledges that custody risk is the most significant risk in this context. However, he believes any negative impacts will likely be short-lived, and market forces will ultimately determine Ethena’s net annual percentage yield (APY).
In summary, Ethena’s actions to limit over-leveraging in futures markets and reduce spot supply have the potential to support Bitcoin’s price and extend the current bull market. However, it is essential to consider and manage the associated risks. As BTC’s price experiences a short-term decline, Ethena’s native token, ENA, also reflects this downtrend, trading at $1.22.