Bitcoin (BTC) changed little for six consecutive days, although prices apparently failed to hold new highs above $ 23,000.
“The market has paused for a while to consolidate,” said Joe DiPasquale, CEO of cryptocurrency hedge fund BitBull Capital, First Mover in an email. “This is normal behavior after sharp rallies as market participants take profits and wait for the next big move up or down.”
In traditional markets, European stocks faltered as Brexit talks stalled. U.S. stock futures were stable as lawmakers worked to close a pandemic relief deal. Gold fell 0.3% to $ 1,880 an ounce.
((Editor’s note: This is the fifth part of First Mover’s summary of how the Bitcoin market developed over the course of 2020 and what it means for the future. Today we cover the June through September period when an explosion of innovation in the fast-growing cryptocurrency subsector of decentralized finance (DeFi) distracted eyeballs – and capital – from Bitcoin.)
In late May, Bitcoin prices saw a 35% year-to-date increase after a series of wild market swings in an undeniably turbulent and terrible year. With the coronavirus-ridden U.S. economy suffering its worst contraction since the Great Depression, even the cops weren’t ready to complain. The Standard & Poor’s 500 index of US stocks fell more than 6%.
But then the Bitcoin market suddenly went cold. And then DeFi’s summer began.
Decentralized finance (“DeFi”) is a sub-sector of the digital asset industry in which entrepreneurs build semi-autonomous credit and trading systems on decentralized networks, especially on the Ethereum blockchain. The aim is to create alternatives to the big banks and trading companies centrally managed by human executives and boards of directors in places like New York, London and Tokyo. The idea is that the distributed, computerized versions of the critical financial system infrastructure are fairer and more efficient to use than their old world counterparts.
The first sign of the DeFi madness came in mid-June when the Compound autonomous lending platform, launched in 2017, released its proprietary COMP tokens for public trading in digital asset markets. At that point, users had put around $ 163 million in collateral into the project in exchange for loans. What caught everyone’s attention, however, was a brisk trade in tokens, which suddenly gave Compound a market capitalization of nearly $ 785 million.
Compound’s oversized market cap relative to the total value set in the log could “signal the rally has gone too far,” wrote The Defiant, a newsletter tracking the DeFi sector, on June 16.
Even Compound’s 35-year-old founder Robert Leshner admitted the hysteria: “Because the asset was so new, there was a bit of speculative zeal,” Leshner told CoinDesk in an interview.
It was just the beginning. Two days later, the project had reached $ 2 billion in value, according to the DeFi Market Cap website – twice what venture capitalists consider the threshold for a “unicorn,” a privately held startup valued at at least $ 1 billion .
“DeFi is advancing and space will continue to accelerate,” research firm Delphi Digital wrote in a report.
And bitcoin? Suddenly an afterthought.
“It’s surprising that Bitcoin is so boring, given the events inside and outside the crypto industry,” the digital asset analysis company Messari wrote in its daily email to subscribers.
In mid-July, Messari published a graph in which the daily billing value of the Ethereum blockchain rose to around $ 2.5 billion, surpassing that of Bitcoin.
Suddenly the prices rose not only for Ether, the native cryptocurrency of the Ethereum blockchain, but also for a veritable parade of tokens associated with previously little-known DeFi projects such as Aave, Chainlink, Curve and good luck to your friends explain outliers like yam and spaghetti.
Traditional investment analysts and Wall Street Journal columnists now factually asserted that US stocks would only be propped up by $ 3 trillion in pressure from the Federal Reserve. The DeFi explosion therefore raised the question among crypto industry analysts who wondered whether the digital asset markets had become the new home of capitalism.
“Any derivatives trader looking for incremental and leverage returns has been struck by the size of the moves in DeFi,” Viashl Shah, founder of the Alpha5 derivatives exchange, told CoinDesk. “Of course, the cost of capital at least dictates a little attention this way.”
Major cryptocurrency exchanges like Binance have started rolling out DeFi-related offerings to complement their Bitcoin-denominated trades. Yearn.finance, a just-invented protocol designed to steer users towards the highest-yielding DeFi projects, saw its YFI token rise eight times in August alone.
The headlines became wilder and more incomprehensible, and even old crypto professionals could barely keep up. In a decentralized project called SushiSwap, a so-called “Vampire Mining Attack” was carried out to draw around $ 800 million in liquidity from another decentralized trading protocol called Uniswap, as Brady Dale of CoinDesk reported at the time.
Weeks later, Uniswap surprisingly delivered its UNI tokens to everyone who had ever used the platform, with a market value of at least $ 1,200. This prompted some hilarious commentators to label them as an “incentive for Ethereum users” as they were the same amount as the coronavirus relief checks were sent out by the US Treasury Department earlier this year. Uniswap appeared to have a valuation of $ 5 billion out of nowhere and without the usual hype and press coverage that comes with a major IPO.
Among the traders of digital assets, Bitcoin appeared to be on the defensive in what was referred to as “pet rock” because so little of the rapid DeFi development was taking place on its blockchain. Some Bitcoin traders started converting their holdings into freshly minted digital tokens so that the “tokenized” versions of the cryptocurrency could be deposited on DeFi logs in exchange for hefty interest rates.
In hindsight, DeFi’s summer made Bitcoin more attractive on several fronts.
For one, it confirmed 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 enough that the competition looked real. Competitive projects proved capable of rapid innovation, disruption and growth.
“In 2020 DeFi laid the building blocks for an entirely new financial system: payments, loans, asset issuance and exchange,” wrote Messari’s Ryan Selkis on December 15.
The bullish twist was that as a first-time purchase, Bitcoin could be the gateway to a far more lucrative industry than previously thought for many cryptocurrency buyers.
The DeFi frenzy has also sharpened the focus of many investors on what is possibly the most compelling use case of Bitcoin – as a tool to hedge against central bank money printing.
As the rest of the year would show, this “digital gold” narrative would prove enticing enough for big Wall Street companies and money managers to push Bitcoin prices to new all-time highs. A pet rock, but apparently pretty cute.
Bitcoin consolidated in the $ 22,300-21,500 range on Friday. Bulls appear to be on hiatus after rallying more than $ 4,500 to a record $ 23,370 in the past two days.
The recent rally above $ 20,000 has been accompanied by a surge in bitcoin whales – big investors with the ability to influence market trends.
As of Thursday, the population of entities – address clusters of a single network participant with at least 1,000 BTC – was 2,001, the highest number ever recorded, according to data source Glassnode. The previous high of 1,992 was recorded on December 4th.
The number of whalers has increased 16% this year, while the price of Bitcoin has increased 220%.
The data confirms the popular argument that increased participation by major investors has driven Bitcoin higher. According to Willy Woo, an on-chain analyst and author of The Bitcoin Forecast newsletter, wealthy individuals are increasingly viewing Bitcoin as a hedge against inflation.
The rally looks sustainable as it is supported by strong hands. There seems to be a consensus in the market that 2021 could bring more significant gains. To do justice to the optimistic mood, Deribit, the world’s largest exchange for crypto options by trading volume and open interest, has listed call options at the strike price of USD 100,000, which expires on September 24, 2021.
Also Read: Deribit’s New Options Lets Bitcoin Traders Bet On A $ 100,000 Rally
ether (ETH): More than USD 1 billion on Ethereum 2.0.
connection (COMP): Token prices are rising as plans for a blockchain to adapt to digital currencies of the central bank are described in a new white paper.
What is hot?
Coinbase is submitting preliminary documents for the IPO to the US securities regulators (CoinDesk).
DeFi Collateral Locked hits all-time high of $ 16 billion (CoinDesk)
With Deribit’s new options, Bitcoin traders can bet on a rally of USD 100,000 (CoinDesk).
New territory: How technical analysts trade Bitcoin at all-time highs (CoinDesk)
Bitcoin chatter on Twitter nears 3 year high on price spike (CoinDesk)
Goldman Sachs analysts write that Bitcoin poses no threat to gold’s status as a “currency of last resort” (Business Insider).
Private stablecoins could eventually be used as reserve currencies, says the IMF (CoinDesk).
The Swedish Bitcoin exchange Safello is raising 11 million crowns (1.3 million USD) to cover the cost of its planned listing in 2021 (CoinDesk).
“People in China prefer to trust someone they know or with whom they can interact directly, while people in the US prefer to trust brands,” writes Mable Jiang of Multicoin Capital in op-ed (CoinDesk Opinion).
Bitcoin is “more of a religion than a solution to every problem,” says billionaire Marc Cuban (Forbes).
Stablecoins could be the “next battlefield in the rapidly escalating war between the public blockchain industry and the nation states,” writes Nic Carter from Castle Island in op-ed (CoinDesk Opinion)
Green smoothie, snapper fish burger, bought in the Bahamian health food store with the new digital currency of the central bank “Sand Dollar” (Reuters)
The latest on economics and traditional finance
Federal Reserve Emergency Loan Programs Tackle US Stimulus Package Negotiations (Bloomberg)
Weekly jobless claims rise unexpectedly, reaching their highest level since early September (CNBC).
Coca-Cola cuts 2,200 jobs worldwide (Reuters)
Senate Majority Leader Mitch McConnell Says Bipartisan Stimulus Deal “Within Our Reach” (CNBC)
Robinhood Pays SEC $ 65M to Resolve Allegations That Mislead Customers (CoinDesk)