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The perfect storm led us to a sell-off on Bitcoin and DeFi: weekly recap

September 5, 2020

The digital asset markets were in a parabolic upswing until investor sentiment was hit hard by a perfect storm full of negativity, to end the week on a bearish bias.

Before reading the summary, Find out about the most read stories about the price of Bitcoin, the macroeconomic landscape, and how DeFi mania is gaining traction.

The sharp decline in the equity markets was led by high-quality stocks that had hit record highs. Meanwhile, many tokens associated with the DeFi platform fell sharply, particularly SushiSwap (SUSHI), which lost nearly 40% of its value.

The perfect storm led us to a sell-off on Bitcoin and DeFi: weekly recapThe perfect storm led us to a sell-off on Bitcoin and DeFi: weekly recap

Daily performance of the cryptocurrency market

Daily performance of the cryptocurrency market. Source: Coin360

The correction in traditional markets appears to have influenced the decline Bitcoin (BTC) gained more than 10% before a small spike between $ 10,300 and $ 10,400.

More is not always better

Tech stocks, which propelled US stocks to highs this summer, fell sharply this week. The Nasdaq Composite Index fell nearly 5% in its biggest decline since mid-June.

Apple shares lost 8%, stealing more than $ 150 billion from the iPhone maker. while Amazon, Alphabet and Microsoft fell more than 4%.

As a result, The VIX index jumped above 30 points for the first time since mid-July, and the corresponding volatility index for the Nasdaq rose more than 40 points. almost twice as high as in mid-August.

Historical, The VIX has only risen many times in the past in the 1930s and almost always leads to a significant retreat.

It’s a reminder of that Overcrowded trades are very volatile when someone begins to part ways with their positions. Digital asset traders are more than aware of this dynamic, and while bulls can be particularly upset about their declining wealth, This setback offers the opportunity to rebuild.

The futures curve also flattened aggressively as leveraged buyers were the first to seek protection. And there are many opportunities in the options market to take advantage of erroneous market prices.

Are DeFi Ecosystem Tokens the New OTC Market?

Ethereum transactions hit multiple new highs for the second time in three weeks, and Uniswap V2: Router 2 is now making the biggest contribution to gas usageafter Etherscan. The decentralized exchange it is followed by Tether (USDT); and then DeFi’s newest summer love, SushiSwap: MasterChef LP Staking Pool.

And also, Tether was eventually dethroned from its top position as the main culprit in gas consumption.

Total Locked (USD) in DeFi

Total Locked Value (USD) in DeFi. Source: Defi Pulse

The fact that it has been scrapped from nothing less than a DeFi platform speaks for the recent growth of this industry. Currently, more than $ 9.34 billion is tied up on various platforms in its ecosystem. Currently, Aave, Maker and Uniswap each account for approximately $ 1.5 billion of the total blocked value.

On the one hand, DeFi is a high risk, high return market, as is small cap stock trading (pink sheets). Obviously, both have markets, and they always will have one among those hungry for risk.

Relief for impending high gas charges?

The attention currently drawing the DeFi ecosystem and the recent hyperactivity in Ethereum have resulted in major congestion and sky-high gas commissions on the network. This prompted the founder of Ethereum, Vitalik Buterin, to point out various solutions via rollups and sharding.

ZK rollups are a knowledge-free proof technique that can be used to accumulate or bundle many transactions into a single transaction to reduce the congestion on the Ethereum blockchain. Less congestion would mean lower fees.

Optimistic and ZK rollups can increase the capacity from ~ 15 tx / s to ~ 3000 tx / s by doing most of the transaction processing on Layer 2. Shards, on the other hand, increase the capacity of the primer by 100 times.

ANDThis could result in a 100x drop in commissions. While it is realistic in the long run, it would not decrease as much as it is very likely that the demand for Ethereum will also increase for this reason.

The only solution to high transaction fees is to scale. Tether, Gitcoin, and other apps are doing the right thing by migrating to ZK rollups. On a positive note, Tether is now planning to add support for another Layer 2 scaling solution (the ZK rollups).

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