CME Group’s Erik Norland and Blu Putnam, in their Open Markets video, discussed the relationship between the rise in Bitcoin and Ethereum transaction costs and a drop in prices.
US Commodity derivatives exchange, Chicago Mercantile Exchange (CME) just uncovered some interesting information about the relation between digital asset transaction fees, and their Price movements. The traditional assets exchange – which trades offers Bitcoin based financial instruments – has observed that a sharp rise in Bitcoin, and $ETH transaction usually precedes a steep price reversal.
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In a short video, by Erik Norland and Blu Putnam – for the trading platform’s Open Markets blog – the pair offer insight into how cryptocurrency markets tick. Observing that the progenitor of the crypto market, Bitcoin has offloaded about 50% of its market since the open of 2021, and that runner-up (in terms of market capitalization,) Ethereum has gained 15% within a similar time frame, Norland and The Putnam chop it up about how supply and transaction costs factor into cryptocurrency price movements.
As a direct result of Bitcoin and Ethereum being the most mentioned assets in any conversation regarding cryptocurrencies, they are the cryptocurrency market’s leaders – market share-wise.That is a shifting narrative however, as the pair notes, as Bitcoin’s dominance over the digital assets market has waned from 70%, at the crack of the year, to the sub-50% range in a matter of a few months. Ethereum’s hold on the game however, has been trending upwards all year, and now sits at 60%.
Functional differences between the two assets are key to this change in trend. “Bitcoin is the original cryptocurrency, and investors seem to treat it as a sort of digital gold due to its extremely limited supply,” said Erik Norland, while Ether is comparable to an industrial metal, owing to its potential for wide industrial application. Ether also enjoys a limitless supply, as opposed to $BTC’s 21 million coin hard cap.
The supply differences between the two assets may in future, play a role in their volatility. BTC’s hard cap, apparently may keep it volatile, while Ether’s supply may always keep demand satiated, leading to price stability.
“When you have tight control of supply, that often leads to more price volatility. When demand shifts, and supply cannot respond, then the demand shift may be reflected in larger price swings compared to commodities.”
Bluford Putnam, Chief Economist, CME Group.
It was also noted that a sharp increase in Bitcoin, and Ether, transaction prices usually preceded an 80% price drop. Both asset’s transaction costs ballooned in May, just before Bitcoin experienced another “death“.
The digital asset’s landscape only stands to get more complex, theorizes Putnam, “given all the choices of venues, from a variety of crypto exchanges, exchange traded funds (or ETFs), and futures on cryptocurrencies in both large institutional and small bite sizes.”
