Looking Back On The DeFi Summer Of 2020
DeFI has been a star performing sector in the Crypto space in recent weeks and reminds one of the initial DeFi craze of 2020! Many believed that a DeFi winter would follow but what actually transpired was a bit more intricate and complicated than that. Though DeFi coins and tokens went on to crash in value, something more significant was taking place in the DeFi space. The TVL in DeFi protocols continued to rise despite the depreciation in price. What this was revealing was that DeFi adoption was actually increasing within a bear market. This is very unnatural for a bear market, whether it be a periodic bear market or full blown bear market.
In a standard bear market, as prices begin to edge lower, transactions and volumes usually move down in tandem. These metrics are usually tethered and DeFi managed to break this correlation. This should have been viewed as extremely bullish and yet many within the Crypto space did not seem to pay much attention to it. It was this dynamic that further confirmed a second wave of DeFi was on the way. In an article written some months ago, I expressed my opinion in relation to a strong DeFi move that I perceived would inevitably strike.
We have seen this play out recently, to the horror of some in the space who have managed to form a strong bias against the DeFi sector. When it comes to markets, a bias can be one of the most damaging qualities to adopt. It is wise to work with data and then form an opinion. What most people do, is to avoid data and project opinion. UNI went on to print new all time highs in a time when most were pushing the narrative that DeFi would be stagnant due to gas fees. Data revealed otherwise and though BSC has played a significant role in this move, It was triggerd by activity on ETH despite gas fees.
What Will Carry This Move Further?
To think that the majority of traders and speculators will manage to call the top of this cycle is optimistic to say the least. Many will get caught in the initial collapse, thinking that the next wave up is on the way. What follows is a delay to act and before you know it, most holders are significantly down and cannot bring themselves to sell at the prices on offer. Though there will always be those who will just sell, many will move to DeFi in order to accumulate more tokens and so build up their position and in so doing, move into a profitable position earlier on in the bear market.
While the bull market is on, it seems pointless for some market participants to take on further risk by utilizing DeFi protocols that can be exploited. However, once the gains are gone and the losses begin piling up, DeFi will start to look quite attractive, despite the possible risks. Desperate times call for desperate measures and those not prone to riskier avenues will have to consider them, if they wish to defeat the bear market prior to it actually being over.
Most tend to consider price to be the most revealing metric but when it comes to DeFi, TVL is a more accurate indicator of the health and stability of the sector. DeFi tokens are known to spike and drop but if the the TVL is healthy and growing, price will eventually respond. I don't want to reveal the ingredients to my "secret sauce", but those who decide to crunch the numbers and design a strategy will soon discover what is actually possible, even within a bear market. Furthermore, those who managed to gain early entries on top DeFi projects are relatively safe. The chances of actually moving into the red are quite unlikely.
For instance, anyone who bought CAKE at $0.50 is not overly concerned if the price rockets to $100 and then drops to $20. At an average return of 15% per month, that investment is still yielding more than 100% of the initial investment every month, even in a bear market. Returns will obviously adjust in different market conditions but never so much as to negate considerable gains.
These are my own personal views and should not be considered investment advice in any way. Enjoy the bull market and don't get shaken out!