Stop Comparing 2020 Crypto Rally with 2017; This is Different and Sustainable
The bull market of 2020 is not about bitcoin, but DeFi. Last month Bitcoin recorded less than 5% positive returns and is up 62.6% YTD while Ether jumped 255% this year and 29% in August. Top cryptos failed to do much, some even went negative.
Clearly, the largest digital asset is not the top story of the digital assets market, neither was Ether or any other large-cap crypto. Small-cap cryptos are the ones leading the rally, with a focus on DeFi, file storage, DAOs, and NFT tokens.
According to Messari, 53 digital assets with market caps over $25 million rose more than 10% last week, with 25 tokens gaining over 25% week-over-week.
In August, among the explosive DeFi market, YFI ruled the market with 730% returns surging as high as $38,860. The demand for YFI continues to rise, which in turn is also spelling good things for Ether.
— Alex Krüger (@krugermacro) August 31, 2020
The likes of UMA and Nexus spiked over 450% last month while REN, BAND, Balancer, bZx, and Airswap recorded over 200% returns. Meanwhile, Chainlink, Aave, Loopring, RUNE, Numeraire, and Switcheo registered more than 100% returns in August. Analyst Ceteris Paribus noted,
“What's crazy about this rally is that there's only really been one pull-back so far… a 3-4 day stretch when ETH broke out and then BTC past 11k. Outside of that there hasn't been a ton of selling as of yet.”
DeFi returns by month pic.twitter.com/uHLzIcHylz
— Ceteris Paribus (@ceterispar1bus) August 31, 2020
DeFi has been growing at a warp speech for the past few months, the total amount locked has already gone past $9 billion. And the top four projects, Aave, Maker, Uniswap, and Curve Finance have over $1 billion locked capital.
Also, as we reported DEX Uniswap has exceeded Coinbase pro’s daily trading volume for three days in a row. Denis Vinokourov of Bequant noted,
“The incentives that are offered across these platforms are such that even though the underlying Ethereum network remains clogged up and transaction costs/gas is sky high, the risk/reward continues to favour DeFi participants that are more than content with looking for alpha in DEX space rather than CEX venues.”
The outsized nature of gains across small-cap tokens has many comparing the current digital assets bull market to that of 2017. But “today’s market resembles nothing close to that of 2017,” says Jeff Dorman, Chief Investment Officer at Arca.
The biggest difference between the two markets is that today many tokens are being created after a company has already found a product-market fit instead of simply funding a pipe dream.
In his weekly company blog, Dorman shared how in his latest discussion with several groups of investors, instead of bitcoin, crypto, or rapid price increases, they are focused on the type of digital asset that is “capturing most of the value in today’s market.” He said,
“We firmly believe investing in this evolution has staying power. Forget 2017.”