MKR token, the native cryptocurrency of the MakerDAO platform, has experienced a significant surge in value, rising by 45% in just four weeks. Despite this impressive growth, investors are being advised to exercise caution, as blockchain activity related to the token indicates potential downsides. A key factor contributing to this warning is the increase in the number of MKR tokens held in wallets controlled by centralized exchanges.
Over the past 24 hours, there has been a 5% increase in the number of MKR tokens held by such wallets, reaching a total of 71,190 MKR, which is equivalent to $106 million. This has resulted in the highest total exchange balance since September 3, as reported by Coinglass. This sudden spike in exchange balance may lead to increased price volatility, primarily to the downside. The exchange balance is often considered a representation of investors’ intentions to sell or liquidate their holdings, or to deploy coins as margin in derivatives markets.
Caution advised due to inflow of MKR to exchanges
Analytics firm Santiment has also expressed concern about the recent inflow of MKR tokens moving to exchanges. In a tweet, the company stated that this development is “something to be cautious of for at least a temporary local top.” They also noted the recent rise in MKR’s price and the increase in active addresses. This sentiment is supported by the observation that previous spikes in exchange balance, which occurred in late last month and mid-March, coincided with interim price peaks.
MKR’s growth supported by investments in U.S. Treasury notes
The MKR token has seen significant growth since it managed to defend the psychological support level of $1,000 late last month. This growth can be attributed to MakerDAO’s investments in short-term U.S. Treasury notes, which currently yield over 5%. The platform has invested more than $2 billion of its extensive stablecoin reserves in these Treasury notes. This strategic move has provided MKR with a strong first-mover advantage, allowing the platform to offer a 5% Savings Rate on its stablecoin DAI and to buy back MKR tokens with surplus profits.
Continued outperformance of MKR relative to DeFi 1.0 peers
The success of the DAI Savings Rate (sDAI) and the constant flow of MKR buybacks have contributed to the continued outperformance of the MKR token relative to its DeFi 1.0 peers. This strong performance has attracted the attention of investors and market participants, leading to the recent surge in price and exchange balance.
In conclusion, while the MKR token has experienced impressive growth in recent weeks, investors should exercise caution due to the potential downside risks associated with increased exchange balance and blockchain activity. By closely monitoring market developments and considering the factors influencing the token’s performance, investors can make informed decisions about their involvement with the MKR token and the MakerDAO platform.
