Disclaimer: This is not financial or investment advice. You are responsible for any capital-related decisions you make, and only you are accountable for the results.
New trade - Short ENA
Ethena is a synthetic dollar protocol that has a stablecoin that holds its peg off the "basis trade". The basis trade is when you hold an asset in your spot position and, at the same time, shorten the asset to the exact same amount in the futures market.This allows you to keep a delta-neutral exposure to the market while earning funding rates from your future position. During bull runs, the funding rate is generally very high, and as a result, the yield is equally high.
However, during market turbulence and bear markets, funding decreases and sometimes even turns negative.
Ethena offers a yield-earning stablecoin that is based on this trade. In environments with high funding rates, the stablecoin offers over 20% yield; however, during uncertain or turbulent environments, the yield drops and can even turn negative, causing losses for the platform.
In such environments, it is hard to keep the peg of the stablecoin because many will rush to sell it. As a result, TVL and key performance indicators of the protocol will get worse or even cause panic due to the design of a stablecoin that can de-peg. Therefore, the token of the Ethena protocol (ENA) is vulnerable to corrections in these environments.
Furthermore, as we mentioned many times, in the coming months, we are unlikely to see a massive increase in interest in leverage as the market is derisking ahead of an uncertain macro environment. All things considered, we think ENA is a good opportunity to short.
Here is our thesis in the video format:
Details of the short
Entry: retest of the neckline (range between $0.86-$0.88)
Exit: Take profit at $0.66 and $0.51 ( Ideally, watch the funding rates; if they start going up, that will be the time to TP)
Stop loss: Break above $1
Allocation: no more than 4-5% per trade;
Again, Ethena's stablecoin works off the "basis trade," which means the lower the funding rates, the fewer incentives are needed to hold their stablecoin. Funding has already dropped and will likely be low in the coming months. Maybe it will even turn negative due to the macro, which is very bad for the protocol.
No reason to hold the stable in that case; there is constant selling pressure, and it is hard to keep the peg in that environment. All of this is very bad for the protocol. We covered risks associated with ENA here. Lastly, the chart is a classic example of a double top with a break of its neckline.
Furthermore, there is an unlock in April, and around 70% of the supply is allocated to insiders. The textbook double top is here, and the break of the neckline is from the TA perspective as well. You can short using Hyperliquid or Binance.
Our analysts have been in the trade since around $0.89. We shared the trade on our Discord and on the X platform. We had the confidence not to wait for the break of the neckline yesterday, even though, ideally, you need some confirmation. Since we already broke the neckline significantly, you should aim to get in on retests of the $0.86-$0.88 region.
Peace!
Cryptonary, OUT!
Update
The trade played out beautifully, and reached all targets:
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