Altcoin Season Hope Dim as Traders Unwind Bullish Bets: Crypto Daybook Americas
Over the past 24 hours, major altcoins have experienced a significant decline, led by a double-digit drop in the payments-focused XRP and an 8% slide in SOL. The CoinDesk 80 Index, which tracks the performance of altcoins, has dropped over 7% while the CoinDesk 20 Index, which is dominated by bitcoin and ether, has declined by 4%.
"The crypto market took a nosedive, losing almost 4% of its market cap over the last 24 hours. Without bitcoin's growth, altcoins, which had been driving the market upwards in previous days, found themselves on sale. Forty-eight of the top 100 altcoins are losing double-digit rates over 24 hours, while only three are growing," Alex Kuptsikevich, chief market analyst at FxPro, said in an email.
Amid all this, social media is abuzz with posts about some $2 billion worth of ether waiting to be unstaked, with over 475 Ethereum validators awaiting exit. (check chart of the day section). Some are drawing parallels with January 2024, when large unstaking marked a temporary price top.
The latest surge in unstaking appears to be driven by the soaring ether borrowing rates on decentralized platforms like Aave, which have diminished the appeal of looping strategies designed to boost ether staking yields.
Typically, these strategies involve users depositing liquidity staking (LST) or liquid restaking tokens (LRT) as collateral on platforms like AAVE and borrow ETH. The borrowed ETH is again converted to LRT and LSTs and redeposited, creating a loop. The strategy works when staking yields are greater than borrowing costs.
However, with borrowing costs on the rise, the loop is likely being reversed, leading traders to rush to repay loans, exit LST/LRT, and reclaim ETH.
"The real trigger is soaring ETH borrowing rates since July 16 (peaking at 18%). This forced mass unwinding of ETH leverage loops on Aave, as negative yield spreads crushed profitability.