First Bidder: Bitcoin Rally Stalls as ‘DeFi Summer’ Proves Endless

Bitcoin (BTC) remained largely unchanged after climbing for six straight days, though prices seemed unable to hold fresh highlights above $ 23,000.

“The market has paused for a while to consolidate,” Joe DiPasquale, CEO of cryptocurrency hedge fund BitBull Capital, told First Mover in an email. “This is normal behavior after big surges as market participants take profits and wait for the next big move up or down.”

In traditional markets, European stocks fluctuated as Brexit talks stopped. The future of U.S. stock was steady as law makers worked to finalize a pandemic relief deal. Gold weakened 0.3% to $ 1,880 an ounce.

Moving the Market

(Editor’s note: This is the fifth installment of First Mover’s iteration of how the bitcoin market evolved during 2020 and what it means for the future. Today we’re covering the period from June through September, when an explosion in innovation in the rapidly growing cryptocurrency division in decentralized finance, or DeFi, diverted eyeballs – and capital – away from bitcoin.)

At the end of May, bitcoin prices were sitting at 35% earnings so far, following a series of wild market gyrations during a turbulent and horribly unpredictable year. With the US economy crippled by the coronavirus suffering its worst contraction since the Great Depression, the bulls were not even in complaint; the Standard & Poor’s 500 US Stock Index was down more than 6%.

But then, suddenly, the bitcoin market went cold. And that’s when DeFi’s summer began.

Devolved finance (“DeFi”) is a sub-sector of the digital asset industry where entrepreneurs build semi-autonomous lending and trading systems on top of decentralized networks, primarily the Ethereum blockchain. The goal is to create alternatives to the big banks and trading companies that are managed centrally by human executives and boards of directors in places like New York, London and Tokyo. The idea is that the distributed, computerized versions of essential financial system infrastructure should be fairer and more efficient to use than their old-world counterparts.

The first sign of the DeFi frenzy arrived in mid-June, when the autonomous lending platform Compound, in 2017, began releasing its proprietary COMP tokens for public trading in digital asset markets. At the time, consumers had stocked about $ 163 million of collateral to the project in exchange for loans. But what got everyone’s attention was a plethora of ticket trading that suddenly gave Compound a market capitalization of nearly $ 785 million.

Compound’s external market cap, compared to the total value locked in the protocol, “may be an indication that the rally has gone too far,” wrote The Defiant, a newsletter that tracks the DeFi sector , on June 16.

Even Compound’s 35-year-old founder, Robert Leshner, acknowledged the hysteria: “Because the asset was so new, there was a bit of a speculative craze,” Leshner told CoinDesk in an interview.

It was only the beginning. Two days later, according to DeFi Market Cap’s website, the value of the project reached $ 2 billion – twice the amount that venture capital investors consider the threshold for “unicorn,” a private startup worth at least $ 1 billion.

“DeFi is moving forward and space will continue to accelerate,” research firm Delphi Digital wrote in a report.

A bitcoin? Suddenly an afterthought.

“It’s surprising to find bitcoin so boring given that everything is happening inside and outside the crypto industry,” the digital asset analysis firm Messari wrote in its daily email to subscribers.

In mid-July Messari published a chart showing the value of Ethereum’s blockchain daily settlement rising to about $ 2.5 billion, surpassing Bitcoin’s.

Chart of daily settlement value on Ethereum vs Bitcoin blockchairs, on July 21.
Source: Messari

Suddenly prices were soaring for not only ether, the native cryptocurrency of the Ethereum blockchain, but for a valid parade of tokens associated with hitherto unknown DeFi projects like Aave, Chainlink, Curve and good luck- explain-this-your-friends. outliers such as Yam and Spaghetti.

Traditional investment analysts and Wall Street Journal columnists now asserted a matter of fact that US stocks were only printing $ 3 trillion of Federal Reserve money. So the DeFi explosion raised the question among crypto-industry analysts who began to wonder whether digital asset markets had become the new home of capitalism.

“All derivatives traders seeking incremental yields and leveraged returns have been replaced by the size of the moves at DeFi,” Viashl Shah, founder of Alpha5 derivatives exchange, told CoinDesk at the time. “So, naturally, the cost of capital at least sets some attention in that way.”

Large cryptocurrency exchanges like Binance began introducing DeFi-related offerings to complement their bitcoin-denominated trading operations., a justifiably devised protocol designed to steer consumers toward the highest-yielding DeFi projects, saw prices for its YFI-ticket ticket eight times in August alone.

The headlines kept getting zanier and more unintelligible, and even the old benefits of crypto could hardly keep up. A decentralized project called SushiSwap installed what has been described as a “vampire mining attack” to suck up some $ 800 million of liquidity from another decentralized trading protocol called Uniswap, as reported at the time by CoinDesk’s Brady Dale .

Weeks later, Uniswap unexpectedly delivered its UNI tickets to anyone who had ever used the platform, worth at least $ 1,200 in market value – prompting some witty commentators to call it “an impetus to Ethereum users, ”as it is the same as the coronavirus support checks posted earlier in the year by the US Treasury Department. Appearing out of nowhere, and without the usual hype and press coverage that comes with a large initial public stock offering, Uniswap had a $ 5 billion valuation.

Among digital asset traders, bitcoin looked to be on the defensive, described as “pet rock” because so little of the rapid DeFi development was happening on its blockchain. Some bitcoin traders began converting their holdings into freshly cut digital tokens so that the “token” versions of the cryptocurrency can be deposited on DeFi protocols in exchange for sunken interest rates.

The total amount of collateral locked into DeFi protocols has increased from less than $ 1 billion at the beginning of 2020 to more than $ 15 billion now.
Source: DeFi pulse

Yet, in retrospect, DeFi’s galvanized bitcoin appeal summer on various fronts.

For one, it reinforced the reality that while bitcoin was the oldest and largest cryptocurrency, it was hardly the most interesting. The digital asset industry and market infrastructure had matured to the point that the competition looked real; competitive projects proved to be capable of innovation, disruption and rapid growth.

“In 2020, DeFi provided the building blocks for an entirely new financial system: payments, borrowing, asset issuance, and exchange,” Ryan Selkis wrote from Messari on December 15.

The bullish twist was that bitcoin, as the first purchase for many cryptocurrency buyers, could be the gateway to a much more lucrative industry than previously imagined.

The DeFi frenzy also sharpened many investors’ focus on what could be bitcoin’s most compelling use case – as a tool for hedging against central bank currency printing.

As the rest of the year would show, that “digital gold” narrative would be attractive enough for Wall Street’s big money companies and managers to send bitcoin prices to an all-time high. Awesome rock, but probably pretty cute.

Watch Bitcoin

The chart shows the number of bitcoin whale entities at record highs.
Source: Glassnode

Bitcoin consolidated in the range of $ 22,300 to $ 21,500 on Friday. Bulls appear to be taking a hiatus, having engineered a rally of more than $ 4,500 to a record high of $ 23,370 in the past two days.

Along with the recent rally above $ 20,000 is the rise of bitcoin “whales” – big investors with the ability to influence market trends.

On Thursday, the population of whale entities – clusters of addresses held by one network participant holding at least 1,000 BTC – was 2,001, the highest recorded, according to a Glassnode data source. The previous high of 1,992 was recorded on December 4.

The number of whale entities has increased by 16% this year, while the price of bitcoin has increased by 220%.

The data validate the popular argument that increased investor participation has driven bitcoin higher. High net worth individuals increasingly consider bitcoin a hedge against inflation, according to Willy Woo, a chain analyst and author of the “The Bitcoin Forecast” newsletter.

The rally looks sustainable as it is backed by strong hands. There seems to be a consensus in the market that 2021 could bring more substantial gains. To cater to the bullish sentiment, Deribit, the world’s largest crypto options exchange through volume trading and open interest, has listed call options for the $ 100,000 strike price ending September 24, 2021.

Read Also: New Deribit Options Allow Bitcoin Traders to Bet on Rally to $ 100K

Token watch

Ether (ETH): More than $ 1B stacked on Ethereum 2.0.

Compound (COMP): Token prices are surging as a new white paper outlines plans for blockchain to accommodate central bank digital currencies.

What’s hot

Coinbase files preliminary documents for initial public offering with US securities regulators (CoinDesk)

DeFi parallel lock is always locked high of $ 16B (CoinDesk)

Deribit’s new options allow bitcoin traders to bet on a rally to $ 100K (CoinDesk)

Outstanding territory: How technical analysts always trade bitcoin at highlights (CoinDesk)

Bitcoin chat on Twitter is approaching its highest level in 3 years amid a price surge (CoinDesk)

Goldman Sachs analysts write that bitcoin does not threaten gold’s status as a “currency of last resort” (Business Insider)

Private stablecoins could eventually be used as a reserve, says IMF (CoinDesk)

Swedish bitcoin exchange Safello charges 11M krona ($ 1.3M) to cover the costs of listing a proposed stock exchange in 2021 (CoinDesk)

“People in China prefer to trust someone they know or someone they can interact with directly, but people in the US tend to trust brands,” says Mable Jiang of Multicoin Capital writes in op-ed (CoinDesk Opinion)

Bitcoin is “more of a religion than a solution to any problem,” says billionaire investor Marc Cuban (Forbes)

Stablecoins may be “the next battlefield in the rapidly escalating war between the public blockchain industry and nation-states,” Nic Carter of Castle Island writes in op-ed (CoinDesk Opinion)

Green smoothie, snapper fish burger bought at Bahamian health food cafe with new central bank digital currency “Sand Dollar” (Reuters)


Update on traditional economy and finance

Federal Reserve emergency lending programs become a sticking point in U.S. stimulus bill negotiations (Bloomberg)

Weekly unemployment claims rise unexpectedly, reaching their highest level since early September (CNBC)

Coca-Cola to cut 2,200 jobs globally (Reuters)

The US Senate Majority Leader, Mitch McConnell, says a bilateral stimulus agreement is “close at hand” (CNBC)

Robinhood pays SEC $ 65M to settle allegations that it misled customers (CoinDesk)

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