Bitcoin’s Major Moves, Ethereum’s Rally, and Disaster in DeFi
In the span of a week, the market gained over $15 billion in market capitalization and then promptly lost those gains.
Greed drove the rally as BTC raced past $10,000, only later to see a correction below this psychological barrier. But, this is another chance to buy in before the next rally.
Bitcoin’s Major Movements
Bitcoin reflected the broader market, where at the start of last week it was trading just below $9,800 before breaking above $10,000 and hovering between $10,100 and $10,400. Prices dropped as quickly as they rose, falling below $9,700 in the span of two days.
Today, Bitcoin jumped 3% to narrow the gap to $10,000, hovering just short at $9,900. Altcoins also benefited from the rally, with many outperforming Bitcoin over the same period.
Action in Altcoins
XRP popped 22% from $0.27 to $0.33 before crashing back to $0.30. Litecoin rose modestly from $73 to highs in the low $80s before settling at $76.
But, one outperformer among the major altcoins was Ethereum. ETH rose from $221 to highs of $285 before stabilizing at $280—up an impressive 26%.
The biggest loser among the large-cap coins was Bitcoin Cash, which rode Bitcoin’s price rise from $446 to $490 before falling below $414. Losses of over 7%.
In January, our Coins on the Move signals helped traders secure gains of 80%. For February to date, returns were even better, providing traders with cumulative returns of over 120%.
Contention in Bitcoin Cash
The reason for the market’s loss of confidence in BCH—the risk of another fork.
Bitcoin Cash is struggling with funding its developers. To address the problem, a cartel of some of the largest miners us attempting to push through a block reward tax, a tax on all miners.
Bitcoin Cash figurehead Roger Ver disapproved of the proposal, but it seems to be going forward anyway in the next update. This may split the community. The increase in uncertainty is reflected as higher risk for holding BCH, and thus lower prices.
Major Exploit in DeFi
This week we also saw a major DeFi exploit, resulting in the loss of $330,000 in funds.
This faked information allowed them to take advantage of the protocol for a large profit.
In the long-term, DeFi will create billions in wealth as new financial products, derivatives, and services become cheaply available. However, the journey there will be riddled with hacks and exploits.
Many DeFi services are still largely untested and not only susceptible to technical failure, like hacking, but also from manipulation of the data these decentralized services depend upon.
The interconnectedness of DeFi cannot be understated. Changes in rates on one product can have a profound impact on another.
This is why DeFi currently offers highly attractive interest rates, anywhere from 5 to 20%. People pay for these rates in risk—even potentially losing everything.
But, with high risk comes the potential for large returns. Those who are informed and can avoid the pitfalls and reap the rewards in this rapidly growing segment.
Insurance and Hedging
Since the bZx exploit, DeFi enthusiasts have flocked to products insuring themselves against these kinds of catastrophes in the future.
And now, with the ease of creating new financial products, it’s possible to hedge away this risk through options or insurance.
But, as with the rest of DeFi, these products are still nascent. Even so, there will be a Cambrian explosion in terms of innovation in the coming few years. The wealth creation will be enormous.
New kinds of derivatives, betting markets, and other much-needed products will become available to people all over the world. People in the suburbs of Indian Mumbai will have just as much access as those in the Bronx of New York.
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