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March 18, 2024

Crypto Markets Slide Lower on Hot Inflation Data

March 18, 2024

Amidst a backdrop of market volatility, the recent retracement of Bitcoin from its all-time high, triggered by hot inflation data, reverberated across altcoins last week, prompting significant declines. 

However, amidst these varied narratives, Ethereum derivatives maintained their resilience, showcasing sustained confidence in the face of market uncertainties. 

Concurrently, Ethereum’s Dencun upgrade catalyzed a monumental reduction in layer-2 gas fees, heralding a new era of scalability and Elon Musk’s resurgence in advocating for Dogecoin as a viable payment option for Tesla products reignited fervor among enthusiasts. 

After a new all-time high Bitcoin retraces on hot inflation data

After soaring to an unprecedented pinnacle of $73,750, Bitcoin has continued to trade lower over the weekend due to higher-than-expected inflation results.

This dramatic dip has rippled across the cryptocurrency landscape, with numerous altcoins also experiencing declines exceeding 10%.

Multiple factors have emerged as potential explanations for this market upheaval.

Firstly, the release of economic data in the United States sent shockwaves through the financial sphere on Thursday. 

The Consumer Price Index, a barometer of price fluctuations across a spectrum of goods and services, revealed a notable increase of 0.4%, surpassing expectations. 

Similarly, the Producer Price Index, indicating price alterations post-manufacturing, surged by 0.6%, outstripping forecasts by a significant margin. 

These findings underscore a persistent inflationary pressure, triggering a cascade of reactions within the market ecosystem.

According to the CME Fed Watch tool, investors have dropped expectations for a Federal Reserve interest rate pivot to 2% for this Wednesday’s FOMC meeting and to 6% for the next FOMC meeting in May. 

Target rate probabilities for the May FOMC meeting
Target rate probabilities for the May FOMC meeting

In addition to interest rate concerns, the cryptocurrency market was roiled by a flurry of liquidations, with a staggering 233,000 traders facing forced closure of positions, amounting to a colossal sum of $775 million. 

The magnitude of these liquidations underscores the fragility of overleveraged positions and the inherent risks associated with margin trading.

Despite the apparent turbulence, seasoned observers view these market corrections as a necessary purging mechanism. 

While newcomers to the crypto sphere may find the volatility unnerving, veterans recognize its indispensable role in fortifying the market’s resilience and sustainability.

Ethereum derivatives stand firm amid market volatility

A tumultuous descent on March 15 for Ethereum prompted $126 million in forced liquidations within ETH futures. 

Despite these uncertainties, Ethereum derivatives remained resilient, indicating sustained confidence in the market. 

Perpetual contracts, known as inverse swaps, showed consistent positive funding rates, suggesting ongoing demand for leverage from traders holding long positions. 

Typically, during bullish market phases, these rates surge significantly, but they have remained steady amidst the recent correction.

Analysis of the balance between call (buy) and put (sell) options further solidifies this stance. 

Over the past 10 days, the demand for Ether call options has outweighed that for protective puts by a notable margin, indicating a neutral stance among traders, with no significant shift towards bearish positions.

Despite the volatility witnessed over the weekend, Ethereum derivatives continue to exhibit strength and stability, reaffirming the resilience of the bull market. 

Put to call option ratio from March 1st to March 18th
Put to call option ratio from March 1st to March 18th

Ethereum layer-2 gas fees plummet post Dencun upgrade

Ethereum’s recent Dencun upgrade, implemented on March 13, has catalyzed a remarkable reduction in transaction fees across various layer-2 protocols. 

With some platforms witnessing a staggering decline of up to 99%, the Dencun upgrade is being hailed as a pivotal advancement in Ethereum’s scalability journey since the Merge.

Starknet, a leading Ethereum-based L2 protocol, showcased a substantial 99% decrease in gas fees following the Dencun upgrade. 

Prior to the upgrade, the gas fee stood at over $6, whereas post-upgrade, it plummeted to a mere $0.04.

Similarly, other prominent L2 platforms such as Optimism, Base, and Zora OP mainnet also experienced significant drops in gas fees after the Dencun upgrade. 

Optimism’s average transaction fees fell to $0.05, while Base recorded a reduction to $0.064. 

Arbitrum and zkSync Era also observed decreases to $0.5 and $0.16, respectively, within the first 24 hours post-upgrade.

Layer-2 median transaction fees during March 2024
Layer-2 median transaction fees during March 2024

The Dencun hard fork introduced nine Ethereum Improvement Proposals (EIPs), notably EIP-484, which introduced data blobs to L2s. 

These data blobs, a novel transaction data type, bypass the conventional “call data” process, enabling faster transactions at reduced fees. 

The upgrade, in development for two years, is considered one of the most intricate forks since the Merge, with a substantial emphasis on scalability and lowering gas fees.

Elon Musk reignites Dogecoin fans

In a recent visit to a Tesla facility near Berlin, Elon Musk reignited enthusiasm for Dogecoin as a potential payment option for Tesla products. 

The visionary entrepreneur, renowned for his innovative ventures and forrays into cryptocurrency, expressed openness to enabling Dogecoin payments during an interaction with attendees.

Musk’s remarks, captured in a widely circulated video on social media platforms like X, conveyed his positive stance on incorporating Dogecoin into Tesla’s payment ecosystem. 

Tweet depicting Elon Musk’s talk at the Berlin Giga Factory
Tweet depicting Elon Musk’s talk at the Berlin Giga Factory

“At some point, I think we should enable that,” Musk affirmed, signaling potential support for the meme-inspired cryptocurrency. Embracing the spirit of Dogecoin enthusiasts, he echoed the rallying cry of “Dogecoin to the moon.”

The tech luminary explained that hi’s endorsement of Dogecoin stems from grassroots support within Tesla and SpaceX, where factory workers advocated for its recognition. 

Musk highlighted Dogecoin’s unique position as “the people’s crypto,” underscoring his commitment to backing it.

Notably, Tesla presently accepts Dogecoin for merchandise transactions, alongside Bitcoin payments for vehicle purchases.

Dogecoin’s ascent to prominence accelerated dramatically following Musk’s vocal endorsement on social media platforms in 2020, propelling its market capitalization to over $25 billion.

Collaborative efforts between Dogecoin developers and Musk have sought to enhance the cryptocurrency’s utility and foster widespread adoption for everyday transactions. 

Musk’s recent comments have injected fresh momentum into Dogecoin, triggering a notable price surge. At the time of Musk’s announcement, Dogecoin’s price surged to $0.18, marking a significant increase. 

Although it has since dipped slightly to $0.14, the cryptocurrency remains buoyant, with a 4% gain over the past 24 hours and an impressive 73% surge over the last 30 days.

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