As bitcoin enjoys strong momentum that inches it ever closer to its all time highs, DeFi tokens have started to recover, lending credence to the idea that another altcoin season might be around the corner.
In Brief
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Yearn Finance & Compound are leading a DeFi recovery.
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ETH/BTC stands at a crossroad again.
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Altcoins competing with bitcoin are unlikely to survive.
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Bitcoin is the go-to institutional cryptocurrency.
Bitcoin has surged to heights not seen since 2017, gaining over 72% since the beginning of September, and a 330% since the March sell-off.
As this happens, however, the decentralised finance (DeFi) phenomenon has started to re-emerge as several familiar protocols lead the recovery. Of these protocols, Compound (COMP) and Yearn Finance (YFI) have climbed 60% and a whopping 194% respectively since the start of November.
Ethereum, which is the current backbone of Decentralised Finance protocols, has also inched closer towards reclaiming the $500 landmark last seen in 2018, having risen a comparatively modest 30% this month.
While the value proposition of many altcoins has a tendency to trend towards zero on a long enough timeline, projects continue to develop on ethereum and fresh attempts to create a hybrid financial system have persisted. Of late, DeFi has provided strong tailwinds for the ecosystem after having taken a beating due to rampant scams and ponzis – typical of numerous ethereum-based projects. However, it appears that the market isn’t keen on throwing the baby out with the bathwater when it comes to financial experiments.
Indeed, protocols such as Compound have created a market for borrowers to take out collateralised loans against lenders, who in turn rake in interests paid by those borrowers. There are a variety of such semi-decentralised money markets, each with their own specialisations, and all of which continue to build in the background.
Will Ethereum rally against bitcoin?
Traders, analysts and commentators like Ivan On Tech have attested to the likelihood of ethereum regaining ground. Per Ivan’s comments on his latest podcast, ethereum and DeFi stand to gain as crypto news cycles shift alongside capital allocation strategies.
From a technical perspective, the current ethereum/Bitcoin (ETH/BTC) chart suggests that such a reversal could be at hand again.
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Typically, altcoins rally on the back of bullish ethereum momentum. Such momentum is gauged against bitcoin rather than US Dollars or Euros – the reason being that cryptocurrencies in general tend to go up in value against fiat in a bull market.
Speaking to this technical development, Ivan said: “we might go down and touch the trendline, but I do expect an important bounce measured in bitcoin“.
Seen in historical context, such a scenario would spur growth in ethereum and DeFi as the bitcoin-ethereum cycle plays out again.
Bitcoin is King
Irrespective of these altcoin games, however, the value proposition between altcoins and bitcoin is incomparable. This is as clear as the existence of gravity. For the most part, altcoins are currently valued as speculative vehicles – used by traders who are anticipating volatility similar to what bitcoin used to do back in the early days.
As such, it’s not clear whether value investors would enter the space in large numbers as they do with bitcoin. After all, every single hedge fund or noteworthy institution has invested in bitcoin, not in ethereum or altcoins.
In addition, contrary to ethereum maximalist beliefs, there is little reason for investors to put money into altcoins that compete with bitcoin. The inflationary hedge – digital gold argument has already been settled, and is in the process of being realised on a global scale.
This is not to say that value does not exist outside of bitcoin, but a sense of perspective is key in any market.
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