Bitcoin prices were down slightly, leaving the cryptocurrency on track for its first weekly decline since mid-July.
Crypto markets might be full of hype and rampant speculation, but they also might be keeping the fires of capitalism lit as the coronavirus-induced economic crisis pushes governments and central banks ever deeper into stimulus packages and monetary intervention.
What's Hot – or Not: Dai is now on Binance's staking platform, Kyber looks cheap and jobless claims, Grayscale premiums.
PRICE POINT
Bitcoin was slightly lower early Friday, leaving the cryptocurrency on track for its first weekly price decline since mid-July.
The largest cryptocurrency broke above $12,000 earlier in the week and failed to hold the gains, though John Willock, CEO of crypto asset manager Tritum told CoinDesk Thursday that “maybe we’ve got $13,500 in the next phase up in the coming days.”
European stocks were up and the euro was down early Friday as investors continued to bet on technology shares and a vaccine breakthrough while shrugging off fresh signs that the economic recovery is faltering. The dollar was headed for its first weekly gain since mid-June.
"It does almost seem as if the entire crypto market is taking its cues from the U.S. dollar," Mati Greenspan, founder of the foreign-exchange and cryptocurrency analysis firm Quantum Economics, told subscribers in an email.
What's surprising is that these still-fledgling digital-asset markets might be more rational and functional these days than Wall Street: The various ups and downs of token prices are sending out bona fide market signals that point to projects and opportunities where capital is warranted, and investors are responding.
Sure, bitcoin has benefited from the perception that the largest cryptocurrency might benefit from inflation, since many investors see it as a hedge against currency debasement, similar to gold.
Far more fascinating are the capital flows into the semi-autonomous lending and trading systems being built atop the Ethereum and other blockchains under the rubric of "decentralized finance," or DeFi.
A real market?
Soaring token prices for projects like Aave, Chainlink, Compound and Curve, not to mention good-luck-explaining-this-to-your-friends outliers like Yam and Spaghetti, have indeed attracted capital, at least for stretches. According to DeFi pulse, total value socked away into the platforms has jumped 10-fold this year to $7 billion.
It might all just be speculative hype, but that might actually be preferable to global foreign exchange markets that are heavily influenced if not controlled by central-bank officials.
Within the digital-asset ecosystem, investors have figured out how to quickly allocate and reallocate capital whenever new opportunities arise.
CoinDesk's Daniel Cawrey reported on Thursday that juicy returns in the DeFi market are making some investors shift away, at least temporarily, from putting their money into options contracts on bitcoin.
“Every derivatives trader that was looking for incremental yield and levered returns has been besotted by the magnitude of moves in DeFi,” Viashl Shah, founder of derivatives exchange Alpha5, told Cawrey. “So, naturally, cost of capital dictates at least some attention that way.”
Open interest in bitcoin options has dipped recently. (Skew)
Traders are even are putting their bitcoins into DeFi platforms to take advantage of the higher yields in the fast-growing arena.
Since the start of the year, the number of bitcoin locked in DeFi has grown 34-fold to about 49,000.
It might be a bubble, but at least it's not a game of trying to anticipate the Fed's next move. In fact there's even room for investors to take bets on which projects might become dominant players in the future, without struggling so much to understand what exactly is happening, as often seems to be the case these days in so many traditional markets.
“DeFi long-term will revolutionize finance, but this short-term bubble is bound to pop eventually, in my opinion,” Michael Gord, co-founder of trading firm Global Digital Assets, told Cawrey. At that point, the locked-up bitcoins might flow back out of DeFi, and more money might flow back into bitcoin options.
Almost like a real market.
There's a thriving market for borrowing and lending cryptocurrencies. (DeFi Rate)
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Bitcoin has pulled back more than 5% from the 13-month high above $12,400 reached on Monday.
Unless buying action comes quick, downwards momentum could push prices down to $11,000, the cryptocurrency trading firm QCP noted earlier this week.
Open interest in bitcoin options has risen back to near record high levels seen in July.
However, that is not necessarily a bullish development, as investors have recently sold call options. That is evident from the recent recovery in the one-month put-call skew from -10% to -3%.
Investors typically sell call options when they expect prices to consolidate or drop.
Dai (DAI): Stablecoin gets on Binance’s new DeFi staking platform. Dai, the dollar-linked stablecoin for crypto lending platform MakerDAO, has become the first available digital asset on Binance’s DeFi staking program. The Binance initiative aims to tap into this year’s booming DeFi market by offering users the ability to earn "staking rewards," similar to interest on a bank deposit. Dai will be used to participate in Compound staking, according to Binance. Compound, another DeFi money market protocol, has more than $993 million worth of dai supply right now, according to its website. As CoinDesk previously reported, users of Compound were rushing to deposit their dai on the platform to maximize yields.
Kyber (KNC): DeFi token looks cheap based on a discounted cash flow analysis, and comparison with Synthetix (SNX) and Balancer (BAL), according to a new report by TradeBlock.
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