DeFi has seen an explosion of activity and traffic in the last month. From initial liquidity offerings to record-breaking locked up values, we see DeFi be a successful experiment on the blockchain. This article will look through DeFi’s recent success and build a case for why it’s holding the market back.
Let’s begin by analyzing the market as a whole. Bitcoin successfully made it back to $11k but it’s missing fundamental market sentiment. The bulls have been struggling to keep the price above the $11k mark and the bears are unwilling to lead price action. The catalyst for further upwards movement is an influx of new investors who would help keep sustainable gains.
Although new investors would be nice, it seems that selling pressure would be too strong for them to handle. According to Glassnode, 1,113BTC were transferred to exchange wallets on September 13th, making it the biggest single-day outflow since December. This data comes from BTC being transferred from miner wallets to exchange wallets.
Another small group of people who are ready to pull the trigger is the whales who bought at around $9,800. The next graph shows whale clusters indicated by the red bubbles. The larger the bubble grows the more funds are moved from fat wallets.
If bitcoin price drops below $10,000 it’s more than likely that these large BTC holders will sell a portion of their holdings to cut their losses. This sell-off would be enough to validate the “gap-theory” in where the $9,600 CME gap has yet to be filled and a short bear market is needed in order to get back on track.
Ethereum Just Can’t
Ethereum’s network is struggling to keep up with transactions. Its network fees have reached record highs, beating 2018 bubble levels. According to Etherscan, the last all-time high in daily transactions was 1,350,000 tx/day, on September 17th we reached 1,406,000.
Although this may seem like great news, it’s causing a negative effect. Retail investors are unable to trade the market without taking on a heavy fee. This fee cuts into their profits and makes it unsound to trade anything while the network is congested. This causes nothing but DeFi related tokens to receive the most attention as yield farmers and UNI holders are moving funds to make a quick profit. If more traders continue to wait on the sidelines for lower fees, the sellers, the people who have more to lose, will overpower the buyers.
Transaction fees at this level are completely unsustainable and is a clear sign of people FOMOing in. DeFi is beginning to paralyze the network the way Cryptokitties has. No one can determine when a cool down may start but you don’t want to be in the middle of it when it does.