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How Would Celsius’ Liquidation Impact the Crypto Market?
On January 3, crypto-focused financial services platform MatrixPort published a report speculating that the Securities and Exchange Commission (SEC) could reject applications for a spot Bitcoin ETF this month and approve them later in the year because of political headwinds within the agency. Although Bitcoin dropped by 4.8% following the report, the soaring open interest combined with the high funding rate, whose spike can be seen below in Figure 1, also contributed to the short-lived decline. This implied the market was overleveraged and required a corrective flush.
Figure 1: BTC Funding Rate
Source: Glassnode
Conversely, progress seems to prevail as Goldman Sachs aims to be an authorized participant for Blackrock and Grayscale, while the SEC met with the NYSE, Nasdaq, and CBOE to discuss amendments triggered in the 11th hour. In addition, multiple asset issuers also filed 8A forms last week, which could imply that applicants have overcome significant hurdles from the agency’s point of view. In summary, the outlook for Bitcoin appears robust, with long-term investors—those who have held the asset for over a year—reaching the highest levels (~67%) in Bitcoin’s 15-year history, as seen below in Figure 2. This underscores the strong conviction in the asset over the long term
Figure 2: Percentage of BTC supply moved over a year ago
Source: Glassnode
Celsius Begins its Liquidation Procedure
The bankrupt lender submitted a request to unstake 206K ETH, as part of its efforts to pay back creditors. Representing 1.9% of the total staked ETH ($450M), the request could add some selling pressure over the coming weeks. However, it’s worth noting that Celsius will allow in-kind redemptions, meaning it’ll distribute BTC and ETH holdings to users directly, so the company won’t have to sell the underlying to meet its obligations. Finally, the decision is also causing a significant surge in the ETH exit validator queue, as shown in Figure 3, which would take close to 14 days to fully exit and withdraw now while contributing to an increase in staking yield, bringing it up from ~3.088% to ~3.117%.
Figure 3: Ethereum Validator Queue
Source: Ethereum Validator Queue
Arbitrum Enhancing Customization Options
Arbitrum has announced that its custom blockchain development solution, Orbit, will allow networks building on top of it to designate their tokens as gas currencies instead of ETH, once they meet a specific criteria. The upgrade ensures that networks built on top of Orbit can create utility for their token while offering advanced features like gas subsidy. This level of flexibility puts Arbitrum on par with Cosmos, which makes it a more favorable option amongst developers. However, with the announcement of Arbitrum’s optimized architecture and the forthcoming implementation of Ethereum’s Dencun upgrade expected in February, there has been a resurgence of interest in Arbitrum, as well as other high-beta plays on the Ethereum network, such as Optimism and Lido, seen below in figure 4. Thus, we expect the assets mentioned above to perform well leading into the upgrade.
Figure 4: Price Action of ETH vs ETH Beta(s) vs SOL
Source: TradingView
This Week’s Calendar
Source: Forex Factory, CoinMarketCal
Research Newsletter
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
Stablecoins are digital currencies tied to assets like the U.S. dollar, offering the price stability needed for payments. They maintain their peg by being backed 1:1 by their underlying fiat currency, with issuers holding equivalent amounts in cash and cash equivalents, making stablecoins a digital representation of those reserves. Their market has doubled to over $235 billion, with daily usage nearly doubling in two years.
Why are stablecoins making headlines now?
Due to their clear product-market fit and growing mainstream adoption, stablecoins have become a top priority for regulation, with both industry leaders and policymakers calling for swift action.
On April 4, the Securities and Exchange Commission’s Division of Corporation Finance finally clarified that stablecoins are not securities if backed one-for-one by USD or similar assets and used for payments or value storage. These “Covered Stablecoins” are not marketed as investments, lack profit incentives, and include protections like reserves, making securities law registration unnecessary for issuance or redemption.
The GENIUS Act, introduced in February and advanced by the U.S. Senate Banking Committee in March, marks a major step toward creating a clear legal framework for stablecoin issuance and oversight. This clarity is driving momentum as Fidelity is set to launch its own stablecoin, and Bank of America is preparing to follow it once legislation is finalized.
Globally, the European Union’s Markets in Crypto Assets (MiCA) framework has already come into effect, reinforcing a broader shift toward formal integration of stablecoins into traditional finance. These developments reflect a growing consensus that stablecoins are emerging as essential infrastructure for global payments, treasury management, and digital asset adoption.
What are the benefits of stablecoins?
Stablecoins are digital currencies designed for fast, low-cost, and stable transactions. Since their launch in 2014, they’ve become a go-to tool for online payments, especially cross-border transfers. As they’re pegged to stable assets like the U.S. dollar or euro, they avoid the wild price swings seen in other cryptocurrencies.
They’re accessible to anyone with internet, making them especially valuable in regions with high inflation or limited banking access, like Argentina or Turkey.
With some built on public blockchains, stablecoins offer transparency, letting users track transfers and supply in real time. For institutions, they also simplify treasury management by acting as efficient digital cash that can be deployed instantly.
Who are the major players in the stablecoin race?
Tether (USDT) and Circle (USDC), the two largest stablecoin issuers, collectively hold over $204 billion in U.S. Treasuries, making them the 14th largest holders globally. Their combined treasury holdings surpass those of entire nations, including Norway and Brazil.
USDT leads with $144 billion in circulation; USDC, backed by Coinbase and known for compliance, has become a trusted digital dollar across global finance.
Why stablecoins matter: A revenue engine for blockchains
Stablecoins generate steady revenue for blockchains like Ethereum and Solana by driving transaction fees with each transfer. With trillions in annual volume, they help sustain network activity beyond speculation.
On Ethereum, for example, USDT and USDC transactions are major contributors to daily gas fees. Year to date, Tether ranks #3 and USDC ranks #5 in terms of total gas consumed. Tether and Circle also dominate daily transaction activity on Ethereum, averaging approximately 12 million and 6 million transactions per day, respectively, making them the top two entities on the network by daily transaction count.
Meanwhile, on Solana, stablecoin activity has surged, helping sustain validator rewards and strengthen protocol economics. In addition to the mainstream utility, stablecoins represent reliable, protocol-level cash flow, making them crypto’s killer use case.
Research Newsletter
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
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