The Bloomberg Galaxy Crypto Index gained more than 60% in 2020, overtaking gold, equities, bonds and commodities. This was driven higher primarily by the surge in Ethereum which in turn was caused by the increased adoption of decentralized finance, or DeFi.
DeFi creates financial functions onto digital ledgers called blockchains, allowing people to lend or borrow funds and earn interest in a savings-like account without the need for traditional intermediaries like banks. Many DeFi applications are run on the Ethereum blockchain.
Ahead of the Pack
A gauge of cryptocurrencies outperformed other assets so far in 2020
DeFi collateral levels have reached $9 billion from less than $700 million at the start of the year, according to Fasset, which operates a blockchain-based marketplace for infrastructure investment.
Crypto markets have done well during the Covid-19 crisis partly because Bitcoin becomes a repository like gold, when risks multiply, according to Marc Fleury, chief executive officer of crypto asset management and financial technology firm Two Prime.
“The risk is bigger being outside of crypto, rather than being in and losing.” Antoni Trenchev, CEO and Managing Partner of Nexo on Bloomberg
In an interview with Bobby Lee, the former CEO of Bitcoin exchange BTCC, predicted that the flippening would take place within nine years and Bitcoin will shoot immensely. Flippening refers to a future event that will see one cryptocurrency (Ethereum) dominating Bitcoin in terms of market capitalization. Nevertheless, in this scenario, Lee used it to mean that Bitcoin will overtake Gold.
Lee went further to point out that the Bitcoin deflationary value will help it reach a high market capitalization when compared to gold.
Skeptics are unconvinced, arguing crypto markets have a history of wild swings and are merely riding a tide of liquidity. Cracks are also appearing in the hype around DeFi, suggesting it isn’t as decentralized as touted.
The Bloomberg Galaxy Crypto Index tumbled nearly 10% over the past week as the pandemic hurt sentiment across a number of assets, highlighting the risk of volatility.
Overall, investor interest in Crypto is increasing as derivatives markets for Bitcoin and Ethereum expand. Bitcoin’s technology continues to mature and the cryptocurrency continues to have an inverse correlation with USD. This is crucial since Gold’s correlation with USD will go on to exist, irrespective of Bitcoin’s increasing dominance and price, making the latter an ideal alternative investment.
Philip Tam
Co-founder & CEO
29 September 2020.
Sources/Reference
Bloomberg, Cryptowisser, Ambcrypto
