Capital Flowing Is Into Small-Caps and DeFi Space as Bitcoin Consolidates
The price of bitcoin consolidated in a narrow range last week but without any catalyst. Today, the leading cryptocurrency is recording some gains of 1.20% while trading above $9,450.
Volume is also extremely low across the board, while bitcoin futures having its slowest session since January, ‘real’ spot volume also dropped below $1 billion.
Very slow trading session yesterday – lowest volumes since 1st of Jan. Focus is on DeFi! pic.twitter.com/Sv8IfpU65O
— skew (@skewdotcom) June 22, 2020
While the price has been relatively stable for some time now, altcoins are posting gains alongside DeFi tokens that have doubled their market capitalization.
This growth was led by Compound who was listed on Coinbase Pro last week and today the trading will go live.
COMP’s stellar performance had people chasing other DeFi tokens that resulted in Aave (LEN) surging 85% in the past week, Melon Protocol 78%, and Hydro Protocol 48%.
Today, the DeFi market cap has jumped past $6 billion, despite many of the tokens recording losses.
Interestingly, the total value locked in the decentralized finance sector has made a new all-time high today at $1.51 billion.
About this growth, analyst Wolf said, “ETH/BTC ready to drive BTC.dominance off a cliff.”
The amount of ETH locked in space has also reached 3 million, however, the peak was 3.2 million ETH on February 2, 2020. The amount of BTC locked in DeFi was at its ATH at 6.79k last week is currently around 5.8k BTC, as per DeFi Pulse.
Small Cap Coins Outperforming Large Caps
When it comes to altcoins, among the top 10 cryptos, ETH is recording the highest gains of just over 3%. Etherem’s popularity in 2020 is the result of not only the growing focus on DeFi but also Tether which is growing exponentially on the Ethereum network and there is much anticipation and accelerated efforts towards the transition from proof of work (PoW) to proof of stake (PoS). Skew noted,
“Stable coins and DeFi seems like a more sustainable product/market fit for Ethereum compared to ICOs in 2017 but the market doesn't see it (yet?) necessarily as adding as much $ value for ether.”
Other altcoins generating profits are DigiByte (24.91%), Ontology (10.92%), OMG Network (10.14%), VeChain (10%), Chainlink (5%), and NEO (4.43%).
Small caps are, however, the ones shining, Acute Angle Cloud is up a whopping 3875%, as per Messari. Thrive Token (65%), Elysian (60%), Open Platform (43%), Martyx (34%), and others are among the small-cap coins recording substantial greens.
In 2020 so far, the small-cap index is up 42% while the large-cap index is up 28%. However, the challenge with small-cap coins is they are a lot less liquid and a lot more volatile. This means transactions costs are higher here.
Given that they have extremely low volume, they are easy to manipulate as well. While small caps outperform large cap coins, they also crash harder when markets fall.
“In traditional markets, such a dynamic would be most welcomed by the bulls, largely because it shows growing risk appetite,” said Denis Vinokourov of Bequant about small-cap assets outperform large cap ones. But small cap assets tend to be more volatile and less liquid. “As such, capital flow into such assets are seen as a sign of market confidence,” he said.