Just in the past few days, the attention in the crypto market was away from Bitcoin in the direction of the big Buzzwords Decentralized Finance (DeFi). Tokens such as Compound (COMP) or a Balancer (BAL) exploded and was able to bring in some investors with high returns. The DeFi Hype and Trend means Yield Farming.
This is the idea of Crypto Assets in each of the protocols to specify, in order to obtain the log Token as a Reward. The fascination of the Narrative to Yield Farming is reminiscent of some of the Hype around ICOs.
In this article, we elaborate on the issue of DeFi and Yield Farming.
Bitcoin exchange rate in the summer hole? – Volume decreases
Before we take a closer look at Yield Farming and DeFi, let’s take a look at the Primus Bitcoin. To do this, we look at the Bitcoin price:
The medium-term perspective, over 14 months shows that the volume has reached this year a low. In doing so, we can see a Parallel to the July 2019. Here, too, there was a significant decline in the trading volume of Bitcoin. Historically, the summer months have always been considered as bad months for BTC. This could repeat the pattern this year. The Wisdom:
Sell in May and go away but remember to come back in september.
Has proven in the last few years, often than not a bad idea. In view of the declining volume, we want to keep the wisdom of this year in the back of the head.
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DeFi + Altcoins vs. BTC: Bitcoin domination drops
In the last two Reports, we have expressed the assumption that the Bitcoin dominance will decline steadily. A look at the following Chart shows that our hypothesis has been proven for the last 4 weeks as correct.
Accordingly, the prices of some of the Altcoins to rise in the ratio of Altcoin/BTC significantly. What’s next, and we can speak of a Altseason?
Rising Channel: the short-term increase in the dominance possible
Although the Bitcoin dominance declined in the last few weeks, we can see in the above graphic, that you are still in an ascending channel (engl. rising channel) is located. In this respect, it is realistic that we can observe a renewed increase in the Bitcoin domination.
Possible reasons for this are the Following: volatility is at an extremely low level and it is likely that you will return again soon to its old strength. Accordingly, larger movements would follow. In addition, many investors were able to capture now gains in BTC, if you have traded with Altcoins. In the short term, therefore, it is likely that these gains will be realized and the Altcoins will therefore be sold.
Altcoins vs. Shitcoins: What DeFi brings us?
We leave the short-term perspective and look in the medium term in the future. Here, in our view, has begun a new Narrative. The distinction between Altcoins and Shitcoins. While Bitcoin Maximalists have used in the past, both terms often used as synonymous, characterised, in our opinion, just a new image.
Due to the current Hype around DeFi, we observe projects, which can have a “clean” token economy and create added value. You actually deliver on your Value Proposition. To put it differently: We currently see a strong increase in the actual use of decentralized apps (dApps). The last two years have been used for the development and with the increasing use of which is likely to attract also the interest in these projects. The consequence would be a decline in the Bitcoin domination.
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– Yield Farming, you need to Define: What you need to know
Now we just talked a lot about Altcoins. The More we have said that, in our opinion, a clear separation between Altcoins and Shitcoins takes place. We are now in a little more detail:
Those Altcoins that have performed in the last days and weeks a particularly strong, had a clear reference to the DeFi. Why is this so? – A pragmatic statement looks like this: Many people are enthusiastic about the topic of DeFi and consider it cool. You realize that using it is easy and you can equally earn money from it.
An example of this Yield Farming is. We would like to explain briefly the function in the context of Compound and Balancer:
Basically, it is the Yield Farming is to allow your “crypto-currencies work”. To Compound this means that you put all of your Assets to the Lending or Borrowing available to. In Balancer, this process is done by putting the Balancer Liquidity Pool liquidity. A more detailed explanation to the Balancer you will find here.
How can DeFi make money?
Now the question is, in which way it is paid for, if one falls back on the Compound or Balancer. The answer looks like this: For every day, as you are taking part in the network, you will receive the respective Protocol-Token (COMP or BAL). Specifically, merit of Token, you Compound the interest you get from the Lending and the COMP. With Balancer, you get a Reward for providing liquidity and BAL.
This results in a permanent increase in the supply (English follows logically. supply). Although the overall offer is not currently high, there are many that have interest in the respective Token. Some don’t know this obviously, as you can even the respective Token “farms”. You buy one of these, in turn, on the DEX. Through the combination of low supply and high demand, it appears logical that a high price. This is a phenomenon we have seen recently multiple times.
The dangers of current Trends
Despite these opportunities, not the risks mentioned. Specifically, there are the following dangers:
Currently there is no really reason to borrow something, except that with the borrowed money Leverage Trading want to operate. Therefore, the risk that some of the borrower (the English is. borrowers) may be liquidated as soon as the volatility strikes back.Due to the rise in prominence with the attention of hackers increases well-being.The current value of the Token is “only” in the Governance. As long as this does not change, you will have only a Token that is a voice of value. Like many of you, this Vote is worth, need to you so decide.
Who would like to learn more about the topic of Yield Farming, you should take the next few days, a look at the Accointing Blog. Here we will take a closer look at the opportunities and risks of this topic. Further questions we will answer in our Telegram Channel: https://t.me/accointing
Conclusion to Bitcoin, the Altcoins and DeFi
We summarize the most important findings once again: Bitcoin currently sees a Stagnation in the price and a decrease in volume. Historically, this Trend is seen regularly and, therefore, the Stagnation could continue for weeks. By the DeFi, and Yield Farming Hype in particular, the Altcoins were able to benefit. As a consequence, the Bitcoin dominance decreased. In the short term, BTC dominance could rise again, even if we expect in the medium term, a further decline.
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Posted by Alex: Co-founder Accointing. For further questions and suggestions you can reach me on (email protected).
(Image Source: Shutterstock, Glassnode, Trading View)