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DeFi Awaits “Rude Awakening” as Bitcoin Rallies: Ex Goldman Partner

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  • A rally in the Bitcoin market has prompted traders to shift their capital from the booming decentralized finance sector.
  • As of Wednesday, almost all the DeFi tokens have plunged sharply on a 7-day timeframe.
  • Kelvin Koh, the co-founder & CIO of the Spartan Group, expects the DeFi’s downside correction to continue further.

A rising Bitcoin market could spell troubles for its neighboring decentralized financial industry, according to Kelvin Koh of the Spartan Group.

The co-founder and CIO said Tuesday that he expects DeFi tokens to experience sell-offs in the coming sessions. He noted that most of these altcoins rose sharply on extensive hype. Traders refused to acknowledge risks associated with buying the tokens at their higher highs, echoing the infamous ICO boom of the late 2017.

“When everything is going up, people don’t think about risks,” Mr. Koh added. “When asset prices go down, everyone will try to get out at the same time, creating a downward spiral. That’s why we advised against trying to chase after unproven lower cap DeFi assets.”

Bitcoin’s Gain is DeFi’s Pain

His comments followed a sharp decline in DeFi tokens in the last seven days of trading. Data fetched by Messari shows that parabolic altcoins, including Aave (LEND), Compound (COMP), Synthetix (SNC), and Kyber (KNC), fell by 13-25 percent in market capitalization.

LEND plunged by almost 47 percent after setting an all-time high near $0.384. Source: TradingView.com

The plunge appeared as Bitcoin established a year-to-date high at $11,420. So it seems, traders sold their DeFi tokens to secure profits and moved their winnings into the Bitcoin market. Ethereum, the second-largest cryptocurrency by market cap, also benefited from a similar trading strategy.

A Zero-Sum Game

Mr. Koh, also a former Goldman Sachs partner, called the capital outflow a “rude awakening” for DeFi maximalists. However, he also noted that the recent correction would wash away overhyped projects while leaving behind only those with genuine, long-term business models.

With “overhyped,” Mr. Koh referred to tokens that rose solely on the “yield farming” hype. He noted that certain projects offered higher yields to attract more liquidity and capital. Meanwhile, investors also added leveraged and risk to the system to secure better profits.

Mr. Koh said that, overall, it may become a zero-sum game for all.

“The top projects that have a real value proposition will do fine during this period,” the analyst added. “The weaker ones may not come out of the wreckage in such good shape. Hopefully, that will be a short and not so painful lesson for investors.”

bitcoin, defi, cryptocurrency, crypto

DeFi market covers just 1.5% of the total cryptocurrency valuation. Source: Messari

Ryan Watkins, a researcher at Messari, also noted that DeFi would eventually come on its own as investors start reallocating their capital from worthless store-of-value and “Ethereum killers” tokens (in the top 30).

“It may seem like DeFi has already arrived with it’s recent run, but at just 1.5% of the entire crypto market, it could just be getting started,” he said in a recent note.

Bitcoin was trading at $11,039 at the time of this writing.





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Algorand (ALGO) price strengthens as institutional investors back the project

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Consolidation periods tend to follow strong rallies but they also present a good opportunity to survey the field and evaluate projects that have strong fundamentals.

One project that continues to gain traction in terms of price recovery and network adoption is Algorand (ALGO), a pure proof-of-stake (POS) blockchain network that has secured new partnerships and real-world use case applications, as well as support from multi-million-dollar funds in recent weeks.

Big funds invest in Algorand-based projects

Raising funds is one of the biggest challenges many projects face and in the last month the Algorand network announced that Arrington Capital, a digital asset manager, had pledged $100 million in funding meant to help accelerate additional development across all facets of the smart contract platform.

This development came on the heels of the June 2 announcement that Borderless Capital, a venture capital firm, had created a $25 million fund aimed at supporting Miami-based blockchain startups developing digital payment solutions on the Algorand network.

Related: Exodus Wallet raises almost $60M in crypto in regulated offering

New partnerships lure investors

A scroll through the Algorand Foundation Twitter feed shows a growing list of cryptocurrency projects across a variety of sectors that have joined up as part of the Algorand community to take advantage of the low fee, POS environment.

The nonfungible token (NFT) sector is showing some interest in the network following a partnership with Curate that will allow for the minting of NFTs as well as the release of a bridge by Curvegrid that will allow businesses to build NFT and blockchain technology into their business and consumer mobile applications.

Other recent examples of adoption include a partnership with the Bermuda-based MAPay healthcare payment solution, which will host its payment solution on Algorand blockchain in an effort to improve efficiency and reduce healthcare costs, as well as a partnership with Xfinite and Eros Now to create a blockchain-based content engagement platform for the 224 million registered users of Eros Now.

These new partnerships come after a busy year for the network which also included the integration of USD Coin (USDC) and Tether (USDT), the two largest stablecoins in the cryptocurrency ecosystem. 

The growing list of network partnerships and investments from players in traditional finance suggests that ALGO is well-positioned to see future growth as the blockchain sector sees continued adoption and the crypto market recovers from it recent sharp correction.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.