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With Bitcoin nearing historical highs amidst strong inflows into exchange-traded funds (ETFs) on spot trading platforms, analysts at research and brokerage firm Bernstein predict a "big bang" resurgence for DeFi. Bernstein analysts Gautam Chhugani and Mahika Sapra believe that the DeFi sector is primed for a substantial rebound in the wake of the previous cycle, which saw it "completely decimated." They argue that during the last cycle, DeFi played an unsustainable yield game driven by token incentives (inflation subsidies), which ultimately collapsed. An example cited is the May 2022 collapse of the Terra ecosystem, where the DeFi protocol Anchor promised a 20% yield on the stablecoin TerraUSD with the support of the Terra governance token Luna. Once the Luna token price plummeted, other parts of the Terra ecosystem followed suit, wiping out around $40 billion in investor wealth in just a few days. However, analysts suggest that this time the yields are genuine, based on the value generated from underlying applications. Using Uniswap as an example, Chhugani and Sapra illustrate its recently proposed fee-sharing mechanism for UNI token holders. The largest decentralized spot exchange generated $2 billion in trading volume in the past 24 hours, surpassing Coinbase's trading volume by 50%, making it the largest DeFi fee-generating protocol, generating approximately $3.7 million per day. Analysts suggest that due to the ongoing fee-sharing voting, it may "transform tokens from simple 'voting' tokens to tokens that earn revenue through protocol user fees," adding, "We expect this to be followed by multiple DeFi protocols." Chhugani and Sapra express concerns about the suggestion by the U.S. Securities and Exchange Commission (SEC) that tokens may be securities—despite the cryptocurrency industry viewing them as tokens associated with permissionless protocols and not requiring specific investment contracts. Bernstein analysts state: "This is the fundamental issue in the case of Coinbase v. SEC, which lists 12 tokens as securities, alleging that Coinbase is an unregistered securities exchange." They add, "Given that in recent years the courts have generally been more subtle than the broad strokes followed by the SEC (as evidenced by the Ripple v. SEC case), we believe the cryptocurrency industry is becoming aware of an opportunity to change the 'legal' narrative of tokens." They further note that Bernstein's allocation to DeFi in its digital asset portfolio is 15%, which has grown by 15% year-to-date. According to data from the Block's dashboard, the total locked value in DeFi has surged by 50% since the beginning of the year, from $60 billion to over $97 billion. While Grayscale's converted GBTC fund continues to experience significant outflows, overall net inflows into U.S. spot Bitcoin ETFs remain positive, currently totaling $7.4 billion. On Thursday, Believers IBIT became the second-largest single-day capital inflow since its launch on January 11, becoming the first spot Bitcoin ETF to manage assets worth $10 billion. Chhugani and Sapra state: "We are not surprised by the resilience of the Bitcoin market price, and we expect the downside to be minimal, with active buying." They continue to expect Bitcoin to reach new historical highs this year, surpassing the peak of $69,000 in 2021. They add, "Furthermore, with regulatory clarity, in the future, we would not be surprised to see global asset management companies move towards potential DeFi ETFs and specific active DeFi funds." Bitcoin's price earlier today broke through $65,000 and set a new historical high of over €60,000 in Europe. According to the Block's price page, Bitcoin's current trading price is $65,174, up more than 5% in the past 24 hours, up 27% in the past week, and up more than 50% year-to-date. Disclaimer: The Block is an independent media outlet providing news, research, and data. As of November 2023, Foresight Ventures is the majority investor in The Block. Foresight Ventures invests in other companies in the cryptocurrency space. Cryptocurrency exchange Bitget is an anchor LP of Foresight Ventures. The Block continues to operate independently, providing objective, impactful, and timely information about the cryptocurrency industry. Below is our current financial disclosure. ©2023 The Block. All rights reserved. This article is for informational purposes only. It is not intended to provide or be used as legal, tax, investment, financial, or other advice. |
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