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The cryptocurrency industry has had a rough start to the third quarter. Despite recent recoveries, bearish pressure has crept up on Bitcoin, which has fallen below $30,000, and Ethereum, which briefly touched $1700. When we begin to incorporate all of the bullish and bearish indicators, we must recognise that multiple factors are currently catering to the overall market’s sentiment switch.
DeFi has also been a significant part of the industry, and in this article, we will discuss how the DeFi marketplace may still be in position to drive a long-term bull market.
Ethereum being bullish with DeFi; How does it work?
According to Glassnode, the implementation and recognition received by DeFi assets during a point of market distress are a sign of strength. From a long-term perspective, it makes sense because, during the 2017 drawdown, most altcoins were subjected to significant bearish pressure.
However, data suggests that most DeFi assets with a point of functionality can currently compete in terms of adoption and growth.
Indeed, according to the charts attached, projects such as Uniswap, Compound, Ox, and 1Inch have been able to scale due to their proper market fit. Aggregators have been quick to recognise the importance of Decentralized Finance applications in the last few weeks.
However, there is one major altcoin that is playing a role in DeFi.
How do exchange outflows affect Ethereum?
One significant aspect of Ethereum outflows is that its supply is moving into its own ecosystem. With Ethereum serving as the primary collateral for the majority of DeFi assets, its exodus from centralised exchanges only points to its natural migration into the DeFi ecosystem.
Similarly, governance tokens that cater to a higher level of integration have better on-chain utility which allows these assets to consistently maintain outbound flow. The aforementioned report observed,
“Tokens like SUSHI which boast strong on-chain incentives via staking to earn earning trading fees, and numerous integrations with lending markets, have seen net exchange outflows during this correction.”
It takes two to tango
Just as most altcoins rely on the Bitcoin rally, it is safe to assume that most DeFi tokens would fare better alongside Ethereum, and vice versa. Most DeFi tokens gained bullish momentum before Ethereum in 2020, and ETH then accelerated rapidly in early 2021.
With Ethereum facilitating consistent nett exchange outflows, the likelihood of a DeFi-Ethereum season occuring during the same timeframe remains favourable.