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The “old season” is here? DeFi tokens are adopting Bitcoin for dominance of the crypto market

August 29, 2020

With Bitcoin dipping below the $ 12,000 level in the past few days and dropping to $ 11,400, altcoins also appear to have lost momentum despite their impressive gains since early 2020. Some believe that the “alt season” or altcoin season is alive and well and that cryptocurrencies still have room to grow, even after tokens like Chainlink and others have grown by more than 100%.

The rise in the dollar price may have been the main reason for the recent fall in Bitcoin (BTC) prices, with safe assets like gold also falling. However, many believe the dollar is likely to pull back, especially given the overvalued US stock market. So, The altcoin season can continue while Bitcoin is picking up steam again.

While an alt season is marked by alternative cryptocurrencies outperforming Bitcoin, it usually happens when the price of Bitcoin increases in value. Most of the major altcoins are correlated to Bitcoin, and when BTC rises some altcoins jump even higher and vice versa. Jonathan Hobbs, author of The Crypto Portfolio and former digital assets fund manager, told Cointelegraph that the boom was due to three factors:

“First, the altcoin charts looked good, with Ethereum at the top. We saw the dominance of the top 100 altcoins over the bitcoin charts break a two-year channel of decline in July. Second, it did There was a lot of hype around DeFi projects like Chainlink, Aave and SNX. Third, since the March crash, Bitcoin has risen or traded in an area that is usually good for altcoins in terms of dollars. But if Bitcoin drops from here, we could see altcoins that went parabolic fall much harder. “

The “old season” is here? DeFi tokens are adopting Bitcoin for dominance of the crypto marketThe “old season” is here? DeFi tokens are adopting Bitcoin for dominance of the crypto market

So, What is driving the recent surge and affecting only certain groups of tokens or assets with certain characteristics? Here’s a deeper look at what appears to be the altcoin season as Bitcoin’s dominance continues to drop to an annual low.

Again in 2017?

In 2017, when the price of Bitcoin soared to its all-time high, other digital assets also gained in importance, many of them related to ICOs or other forms of fundraising. Some of these assets far outperformed Bitcoin, and even continued to appreciate in value as BTC began to fall.

BTC gradually lost market cap dominance in February 2017, falling during the rally from 86% at that time to 50% to 60% in late 2017. After the price drop, Bitcoin’s dominance fell to less than 35% in January 2018 before recovering in 2018 and 2019.

Though Bitcoin’s dominance has declined since early 2020, it is currently at 58%, a long way from its 2018 lowest. The market is also different from the one in 2017 as exchanges and other sectors have raised their standards and regulated options for investing in altcoins have increased. Ryan Watkins, a research analyst at Messari, told Cointelegraph that the projects themselves also show significant improvements:

“The biggest difference between this bull market and the last bull market (2017) is that the market rewards existing products with legitimate added value. Lots of protocols actually generate cash flow for users. This is a big difference. In terms of the vaporware projects in 2017, which made ridiculous sums of money with nothing but a whitepaper. “

In 2017, hype and greed fueled much of the rally. As ICOs generated spectacular returns for investors, more money flowed into the cryptocurrency market. Fear of missing out on an opportunity caused many to invest during this time and while many had a large exchange of worthless tokens – most of which were on the Ethereum blockchain – There are still more Ether (ETH) wallets with profit than Bitcoin wallets with funds. According to Ilya Abugov, Open Data Leader at DappRadar Analytics Platform, The previous season of altcoin was created through advertising and there are some similarities to the current one. He said to Cointelegraph:

“I think we’re seeing a lot of similar negative dynamics. The projects are starting to get hold of the characteristics of the trends. There is less and less quality scrutiny. Also, the regulatory aspect seems to be largely ignored.”

Altcoin Season or DeFi Season?

While the 2017 old season affected digital assets in various subsets of the cryptosphere, the current rallies seem to be related in one way or another to DeFi space. especially since the advent of yield farming, which caused the price of the Compound COMP token to double in the first week of trading.

Other DeFi-related governance tokens have also outperformed Bitcoin, including Aaves LEND, which is up nearly 5,000% this year, and YEarn Finance’s YFI token, which has topped the Bitcoin price per unit to a ceiling of the market of roughly $ 425 million, which is up more than 300% last month and more than 15,400% in the first week of trading.

However, it’s not just governance and reward tokens that emerge. Infrastructure projects like Chainlinks LINK, which provides a decentralized oracle network needed for some DeFi applications like insurance, have also gained in importance. Waves also saw growth thanks to its cross-chain DeFi project Neutrino USD (NUSD), which is designed to bring stability and interoperability to the DeFi ecosystem. According to Watkins, the altcoin season was largely driven by the growth of Decentralized Finance: “DeFi has already started an altcoin season. The excitement is causing everyone to take a second look at every category in the crypto ecosystem, with DeFi at the helm, of course.“.

As such, one could say that DeFi is for the current alt-season what ICOs were for the 2017 altcoin season. It should be noted, however, that while the price increases are impressive, they are still considerably small in comparison. with 2017. It’s also worth noting that while DeFi has grown exponentially, the amount of funds tied to DeFi is still small compared to the numbers ICOs generated in late 2017. Currently, tokens worth over $ 7 billion are locked in DeFi protocols, while the EOS ICO alone achieved a record $ 4.1 billion.

While DeFi may not be as far-fetched as ICOs, there are still a number of concerns that could signal DeFi’s death if not resolved. There are still many security issues in the DeFi ecosystem that have resulted in flawed protocols and malicious attack methods for various projects, and governance is a growing problem in this area too. There is also the question of the sustainability of Ethereum as the blockchain continues to be under more pressure.

The current turmoil is also worrying, especially in a market where a cryptocurrency like Dogecoin (DOGE) can be pumped through a social media challenge and memes take the form of actual projects. There’s no question that pointless speculation is a big part of the current altcoin season, if any. Ben Zhou, co-founder and CEO of Bybit, a cryptocurrency futures trading platform, told Cointelegraph that DeFi tokens are effectively fueling the alt season. Added:

“The hype surrounding the 2017 alt-season was followed by a collapse. Whether or not the same thing will happen this time remains to be seen. However, if there is another litmus test, the altcoins that pass the test have and will be.” have earned their rightful place alongside big brother Bitcoin, although they will likely remain junior partners for a long time to come. “

Can Institutions Create Altcoin Season?

Institutional and investment interest in altcoins is also growing. With institutional money flowing, a long-running altcoin season is likely to be triggered. For example, open interest in ether options contracts has more than quintupled in the past three months to around $ 450 million.

In July, cryptocurrency mutual fund Grayscale also announced that the company’s Bitcoin Cash (BCH) and Litecoin (LTC) funds will be available for public over-the-counter trading after approval by the US financial regulator. . Then in early August Grayscale filed a registration statement for its Grayscale Ethereum Trust on Form 10 with the United States Securities and Exchange Commission (SEC), which upon validation will identify it as an SEC reporting company.

Additionally, Grayscale has also seen a growing demand for alternative cryptocurrencies from institutional investors, who make up nearly 90% of the population. Investors have tried to diversify their cryptocurrency positions by buying into the Grayscale Digital Large Cap Fund with multiple altcoins.

Genesis, a digital currency broker, has continued to support DeFi as a possible catalyst for the alt-season, noting that institutional clients are also showing a demand for high-yield options in the cryptosphere, largely caused by the phenomenon. Crop farming.

However, Regulated options for altcoins remain in short supply as more regulation is needed, especially when it comes to DeFi. Once that happens, the hype may be mitigated by the narrower market, as was the case during the SEC’s crackdown on ICOs.

A not so optimistic outlook: the altcoin season is over

While things are looking promising for altcoins, especially in the DeFi space, others believe that the so-called altcoin season may be over or about to end. A recent blog post by Santiment, a cryptocurrency analysis company, states Bitcoin will soon regain its declining dominance as altcoins decline.

According to the company, the old-season profits could revert to stablecoins / fiat or bitcoin and spark a new rally in the latter: “Everyone will enjoy the party, one at a time, the crazy money will wander from one to the other, there are still some “alts” to pump out (although their numbers are getting smaller and smaller). […] After the process is over, we either go down together or Bitcoin goes up on its own.“Not only does Santiment believe that the altcoin season is over, but some believe that a strong dollar could prevent Bitcoin’s recovery, thereby capping the alt-season as well.

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