May 18, 2022
Permissionless Conference Highlights Challenges and Triumphs of DeFi
Dear Secret BTC Agent,
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| By Alex Benfield |
I’m writing up today’s edition of Weiss Crypto Daily from the Permissionless Conference in West Palm Beach.
This conference is all about decentralized finance (DeFi) — the infrastructure, apps and people that make up this groundbreaking new financial sector.
A lot has happened in DeFi in this current market cycle, with many DeFi projects — like Aave (AAVE, Tech/Adoption Grade “B”) and Compound (COMP, Unrated) — still relatively new, having been born in the last bear market of 2018–19.
These new DeFi projects saw their prices explode as the long-term cycle shifted to bullish during the “Summer of DeFi” in 2020. Tokens like AAVE, Chainlink (LINK, Tech/Adoption Grade “B+”) and Uniswap (UNI, Tech/Adoption Grade “B”) all shot to the moon at a time when other blue-chip crypto prices were rather calm.
This was when attention shifted to DeFi in a big way. And that attention has remained even after prices fell back to Earth.
The genie was out of the bottle for DeFi, and many users saw the benefits of a truly decentralized, permissionless and trustless financial system. And the number of people using these decentralized protocols is continuously increasing, as is the total value locked (TVL) — the total amount of funds users have locked in decentralized platforms.
DeFi seems to be proving itself as the future of finance.
But not everything has been rosy for the DeFi space. Any new system will have setbacks and growing pains. Just recently, we all experienced what happens when a top-DeFi network crashes and burns, as happened with Terra (LUNA, Tech/Adoption Grade “D-”) and TerraUSD (UST, Stablecoin).
This was the first case of a large-cap crypto project completely crashing … and disintegrating user’s funds alongside it. Somewhere between $40 and $50 billion in market value has just turned to dust in the wind.
Naturally, this topic was going to come up at a conference centered around DeFi. Especially considering Do Kwon, the founder of Terra, was previously listed as a speaker here, though he’s since been taken off his scheduled panel.
And it has come up several times, as the fallout will continue to affect the DeFi sector.
Most of those conversations boil down to say the same thing:
A situation like this was bound to happen at some point. Now, the industry needs to use it as a learning opportunity —analysts and investors alike need to spend more time scrutinizing projects like this before they grow to the size that Terra did.
I don’t know exactly how DeFi is going to adapt and change in a post-Terra reality. But I can say that this industry is dedicated to recognizing the problem and correcting Terra’s mistakes.
I’d imagine that any new algorithmic stablecoins will receive far more scrutiny in the future, and any new DeFi inventions will find it difficult to reach the upper echelons of cryptocurrencies without significantly more due diligence.
That’s because, at the end of the day, I truly believe this industry will learn from its mistakes and emerge from this situation ready to make positive changes.
Speaking of, the market seems to have shaken off the worst of the weakness caused by Terra’s crash. Altcoins are still feeling some pain, but market leaders Bitcoin (BTC, Tech/Adoption Grade “A-”) and Ethereum (ETH, Tech/Adoption Grade “A”) are pretty much holding steady, with Bitcoin trading in a tight range between $29,000 and $31,000 for the last few days.
This actually makes it harder to definitively call May 12 a bottom, as we’d been hoping. And we won’t be able to until BTC rallies and can sustain a higher price level.
A local bottom would make conditions better for a relief rally. In that case, we would look to see if BTC could break and hold above $35,000. That would give bulls some breathing room.
If BTC breaks down and loses the $28,000 level again, we expect it to drop to $25,000 and retest the low-water mark set on May 12.
Here’s BTC in U.S. dollar terms via Coinbase Global (COIN):
Ethereum has also been trading pretty steadily around the $2,000 level after losing support at $2,400. It’ll need to push above $2,400 for us to call a local bottom.
If ETH can’t rally soon, it’ll likely retest $1,750 or even lower.
Seeing as this market has been falling for seven straight weeks now and the fact that our Crypto Timing Model is signaling the market should be looking for a bottom, it wouldn’t be at all surprising to see some green candles this week.
Here’s ETH in U.S. dollar terms via Coinbase:
What’s Next
The past two weeks have been a tough test for the crypto market.
The macroeconomic backdrop is scaring away investors across the board in all markets, and the downfall of Terra only piled on the bearish sentiment in crypto.
But there’s plenty of data to suggest that a local bottom in crypto prices should be coming soon, if it’s not already. Markets simply don’t move in one direction for too long.
Something has got to give here, and soon. So, we’ll be keeping our eyes planted on these price charts analyzing for opportunities.
And I’ll be bringing you more updates on the developments and insights I’ll uncover here at the Permissionless Conference. Stay tuned.
Best,
Alex
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