Blockchain activity tied to MakerDAO’s native token MKR has sparked concerns among altcoin investors following a significant 45% price increase in just four weeks. The increase in the price of MKR, coupled with the significant increase in the number of MKR tokens held on centralized exchanges, calls for caution in the market. Here are the details…
Altcoin project has made a splash: Will it continue?
Data from Coinglass reveals that the number of MKR tokens held in wallets controlled by central exchanges in the last 24 hours increased by 5% to 71,190 MKR, which is equivalent to approximately $106 million. This increase in exchange balances is the highest recorded since September 3, intensifying concerns about potential price volatility, especially to the downside. The phenomenon of increasing foreign exchange balances is often interpreted as an indicator of investors’ intentions to sell the coins they hold, liquidate them or use them as collateral in derivative markets. Analysts from Santiment have noted this development. They stated that they were cautious in light of MKR’s recent price increases and the increase in active addresses.
This is not the first time such an increase in stock market balances has been observed. Similar situations were witnessed late last month and in mid-March, both of which coincided with intermediate price peaks as shown in the chart. MKR’s recent price rally began after it successfully defended the $1,000 psychological support level late last month. This rally can be attributed in part to MakerDAO’s strategic investments in short-term U.S. Treasury bonds, which currently yield over 5%.
MakerDAO bought bonds with stablecoin reserves
According to data provided by Parsec, MakerDAO has allocated more than $2 billion of its significant stablecoin reserves to US Treasury securities. This investment strategy enabled MKR to offer an attractive 5% Savings Rate on its stablecoin DAI, while also making it easier to buy back MKR tokens at excess profit. Parsec Research commented on MKR’s strong performance in its weekly note dated September 22. “MKR continues to have a strong first-mover advantage, having invested over $2 billion in short-term bonds through off-chain structures since February 2022.” said.
The report also highlighted that the success of sDAI and a consistent flow of MKR buybacks thanks to the Smart Burn Engine contributed to MKR outperforming its DeFi 1.0 peers. While the crypto community is monitoring the situation closely, the increase in exchange balances and historical patterns suggest caution is warranted in the near term for MKR investors. The market will be watching closely to see how this situation plays out and whether the historical trend of exchange balance increases associated with price corrections will continue to hold true for MakerDAO’s MKR token.
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