DeFi Awaits “Rude Awakening” as Bitcoin Rallies: Ex Goldman Partner

  • A rally in the Bitcoin market has prompted traders to move their capital out of the booming decentralized financial sector.
  • Since Wednesday, almost all DeFi tokens have dropped sharply over a period of seven days.
  • Kelvin Koh, co-founder and CIO of Spartan Group, expects the DeFi downward correction to continue.

According to Kelvin Koh of the Spartan Group, a rising bitcoin market could pose problems for the neighboring decentralized financial industry.

The co-founder and CIO said Tuesday that he expects DeFi tokens to be sold out in upcoming sessions. He written down that most of these old coins rose sharply due to extensive hype. Traders refused to acknowledge the risks associated with buying tokens at their higher highs, reflecting the notorious ICO boom in late 2017.

"When things are going well, people don't think about risks," Koh added. “When asset prices fall, everyone will try to get out at the same time, which will lead to a downward spiral. For this reason, we have advised against tracking unproven DeFi assets with a lower upper limit. "

Bitcoin & # 39; s gain is DeFi's pain

His comments followed a sharp drop in DeFi tokens over the past seven trading days. Data Retrieved From Messari shows that parabolic coins, including Aave (LEND), Compound (COMP), Synthetix (SNC) and Kyber (KNC), fell 13 to 25 percent in market capitalization.

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Lending fell nearly 47 percent after hitting an all-time high near $ 0.384. Source:

The slump occurred when Bitcoin hit a yearly high of $ 11,420. It appears that traders have sold their DeFi tokens to secure profits and have shifted their profits to the Bitcoin market. Ethereum, the second largest cryptocurrency by market cap, also benefited from a similar trading strategy.

A zero-sum game

Mr. Koh, also a former Goldman Sachs partner, described the outflow of capital as a "rude awakening" for DeFi maximalists. However, he also noted that the recent correction would wash over hyped projects away, leaving only those with real, long-term business models.

With "over hyped", Mr. Koh referred to tokens that were created solely because of the hype about "profitable agriculture". He found that certain projects offered higher returns to attract more liquidity and capital. In the meantime, investors have also added leverage and risk to the system to make better profits.

Mr. Koh said that overall it could be a zero-sum game for everyone.

"The top projects with a real value proposition will do well in this time," added the analyst. “The weaker may not come out of the wreck so well. Hopefully this is a short and not so painful lesson for investors. "

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The DeFi market only covers 1.5% of the total cryptocurrency valuation. Source: Messari

Ryan Watkins, a researcher at Messari, also noted that DeFi would come of its own at some point if investors began to redistribute their capital from worthless storage and "Ethereum Killer" tokens (in the top 30).

"It may appear that DeFi has already arrived with its most recent run, but it could only just start in just 1.5% of the entire crypto market," he said in a recent note.

Bitcoin was trading at $ 11,039 at the time of this writing.

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