Top DeFi Coins Drop Despite Ethereum Rally: Here’s Why
- Ethereum pressed higher on Thursday after Uniswap released the UNI token to the world.
- ETH surged around 10% from the time of Uniswap’s announcement to the daily highs.
- This rally came in spite of Bitcoin topping just over $11,000, responding to weakness in legacy markets like the S&P 500.
- Despite the rally in the price of Ethereum, altcoins in the industry are dropping.
- DeFi coins, especially, have suffered, posting losses of 5-15% across the board.
- Analysts think that this weakness in the altcoin market may pertain to
Why Ethereum DeFi Is Suffering Today
Ethereum enjoyed a strong rally on Thursday despite some weakness in the price of Bitcoin and legacy markets. ETH surged from the $360 lows on Wednesday to a local high just above $390.
The coin was benefiting from the launch of Uniswap’s UNI token, which can be mined using ETH, thereby making it an attractive asset to own. Many joked that the ETH rally in response to this development was due to the “Hayden Effect,” referencing Uniswap’s founder.
Unlike normal, though, altcoins dropped despite the strength in the price of Ethereum. This was unnerving as ETH has led the altcoin market higher over recent months, often rallying prior to smaller coins.
Top altcoins, especially those pertaining to the decentralized finance space, shed a handful of percent during Thursday’s trading session.
Coins like UMA, Band Protocol, Synthetix Network Token, Aave, Nexus Mutual, amongst others are down 5-15% in the past 24 hours. This comes in spite of immense strength in Ethereum’s trend as aforementioned.
Many analysts think that this trend pertains to the extremely high gas fees and poor user experience in much of the DeFi space.
One analyst recently explained that the growth in DeFi is clearly stalling:
“While traction for DeFi (AMM + deposits/yield) has grown tremendously over the past few months, DeFi is difficult to use, the ability to lose funds scares most new users away… Ran out of new money. Having said that, most of DeFi participants are existing crypto users. No family offices/HNWI that I know of have deployed new funds into space. (experience tells me that it takes 6m-12m to close these conservatives.”
DeFi thread – Why I am calling the top (At least for now)
1/ DeFi is too difficult to use.
While traction for DeFi (AMM + deposits/yield) has grown tremendously over the past few months, DeFi is difficult to use, the ability to lose funds scares most new users away.
— Theta Seek (@thetaseek) September 18, 2020
Others have specifically commented that Ethereum’s gas fees recently spiking to all-time highs, where it costs over $100 to do simple DeFi interactions, makes this space’s growth naturally limited.
Long-Term Trend of Growth Remains
Many think that this space’s long-term growth trends, though.
Andrew Kang, CEO of Mechanism Capital, shared the below Twitter thread in July.
The thread suggests that DeFi is likely at the start of a parabolic growth cycle due to a variety of market trends:
“Long story short, smart money is starting to trickle in, with a lot of peripheral money potentially snowballing in after. And I didn’t even get to greater retail… I will write a separate thread about China investor psychology & market structure because that’s its own beast. **DeFi development** It’s hitting an inflection point. Those that have follow the space know how hard it is to keep up with the new projects even when researching on a full time basis.”
With recent DeFi token price run-ups, people have been crying "bubble!".
So is it too late to invest or not?
Here are my thoughts on where we are in the state of the DeFi market from an "inside perspective" pic.twitter.com/cDAhpc9tVN
— Andrew Kang (@Rewkang) July 1, 2020
Others agree with Kang’s sentiment that this facet of the crypto market is poised to continue its trend of growth.
Featured Image from Shutterstock Price tags: ethusd, ethbtc Charts from TradingView.com Top DeFi Coins Drop Despite Ethereum Rally: Here's Why