Bitcoin is Trending Upward Again as Altcoins Dominate and DeFi Surpasses $100 Billion

Although Bitcoin remained strong and steady, its dominance continued to slip last week, with altcoins increasing their market share. Elsewhere, records were broken in the DeFi sector and institutions continue to search to find ways to take the upper hand in a market where decentralization is leveling the playing field.

• Bitcoin takes a breath while altcoins dominate
• Ether breaks all-time highs
• DeFi surpasses $100 billion market cap
• Fidelity launches institutional analytical platform
• US Fed Chair weighs in on Dogecoin
• Big-ticket reports to watch out for this week

Bitcoin takes a breath while altcoins dominate

Bitcoin’s dominance continued to tumble from yearly highs last week, with more than half of all cryptocurrency investments now in altcoins. 

This was echoed in last week’s price movements as Ethereum and other high market cap altcoins continued to rise while Bitcoin remained relatively steady. 

Ether (ETH) broke records and marched upwards to a high of $3154. A July hard fork EIP 1559 fix, designed to lower transaction fees, is seen as a key catalyst for many Ethereum maximalists. Once the fix is applied, an increase in Ether’s price will not directly correlate to an increase in gas fees, which has been plaguing the digital asset.

The rollover into altcoins is amplified when Bitcoin prices stall. Investors tend to move into altcoins when they believe there is more potential in the short term. However, this certainly doesn’t mean that Bitcoin is down and out and buyers should be aware that with great potential returns may come greater risk. 

DeFi surpasses $100 billion market cap

Decentralised finance (DeFi), which seeks to decentralise traditional financial services, has increased dramatically over the past year, with decentralised exchanges comprising a large part of that increase.  Those exchanges, such as Uniswap and Curve Finance, utilise automated market makers (AMMs), algorithms which remove the need for a traditional order book type exchange. 

AMMs complete exchanges using smart contracts and liquidity pools, provided to the exchange by liquidity providers. This offers a completely decentralised way of market-making that is active 24/7. Last week the DeFi sector broke $100 billion in assets. This is the current value of digital assets locked in DeFi protocols. 

 

Carbon concerns plague Chinese Bitcoin mining

Chinese authorities announced this week it would be looking into the carbon footprint generated from the Bitcoin mining efforts in the Beijing area. China hosts the largest number of Bitcoin miners in the world. This was highlighted recently when a power outage in the Xianjing province affected Bitcoin prices and miner fees. 

As a result of China’s increasing carbon footprint, Bitcoin mining activity is now coming under close surveillance. The government announced it would be completing checks on Bitcoin mining operators to get a clearer picture of the energy consumption being used.  

According to the rotating chairman of the Blockchain Committee of the China Communications Industry Association it highlights what is to come in the future. Last week he stated, “under the background of carbon neutrality, the future of blockchain mining will indeed have stricter supervision.”

 

Fidelity develops an institutional crypto analytics platform 

Fidelity, an asset management company, announced last week that it would be launching an analytics platform for institutional investors in the cryptocurrency space. The platform will be called ‘Sherlock’ and will collate fundamental and technical data for digital assets. Comparable to Bloomberg’s terminal for traditional investing, the platform will utilise the leading data providers and unique evaluation techniques to help institutions prepare for this new market. 

Not only will investors be able to analyse data within the platform but they will be able to utilise the data off-platform for backtesting and modelling purposes.

Kinjal Shah, a senior associate at Blockchain Capital gave his view on Sherlock earlier in the week. “Sherlock helps us research more efficiently by giving us access to holistic, timely data, which is crucial in this fast-paced market”.

A survey completed by Fidelity between 2019 and 2020 found that 36% of institutional investors had placed funds into digital assets. With substantial increases in the total cryptocurrency market cap over the last year it is likely safe to say that trend has continued into 2021.  

The Fidelity launch highlights the continued need for institutions to understand the cryptocurrency sector. It seems clear there are still vast untapped reserves of institutional money waiting to flow into cryptocurrency markets.  

 

Real estate takes another step towards the NFT space

Deutsche Borse, a market infrastructure operator, Commerzbank, a partner for digital banking and 360X, a team of experienced fintech specialists, announced a collaboration this week to form a blockchain marketplace allowing the sale of both artwork and real estate. 

The aim is to take real assets to the digital marketplace, bridging the gap between asset classes and capital markets. Art and real estate are two examples of real assets that have not yet really existed on decentralized markets. The first minimum viable product is planned for later this year.

Through the digital assets space, an interesting feature is the fractionation of the underlying real asset. Real assets that are tokenized could effectively be shared among several investors. 

Digital artwork has already shown its potential within the NFT space, with the explosion of NFT sales earlier this year. However, many have believed the same technology could easily transfer across to the real estate sector.  

 

Fed Powell uses Dogecoin as an example of ‘frothy’ equity markets

Answering a question on cryptocurrency markets, Jerome Powell, the U.S. Federal Reserve Chairman, last Wednesday stated he believed capital markets were a “bit frothy” and admitted that the central banks QE methods could have something to do with it. 

The Fed Chair said that he believed trends in meme-inspired cryptocurrencies, such as Dogecoin, or in volatile stocks such as GameStop, carried extreme risk to financial stability. Dogecoin has seen a 14,000% increase in price since the start of 2021.

“You are seeing things in the capital markets that are a bit frothy, that’s a fact. I won’t say it had nothing to do with monetary policy but also it has a tremendous amount to do with vaccination and reopening of the economy.”

Retail traders have bolstered assets such as Dogecoin and GameStop over the past year thanks to a combination of increased government payouts, boredom and a desire to to offset the influence of traditional institutional investors.

Some investors are now concerned that parabolic rises such as these are key signs of an asset bubble, which could result in some sectors seeing a large correction. 

Big-ticket reports to watch out for this week:

Monday – Euro Markit Manufacturing PMI Figures, U.S ISM Manufacturing PMI Figures

Tuesday – Australian Trade Balance, Reserve Bank of Australia Interest Rate Decision, U.S Goods and Services Trade Balance

Wednesday – New Zealand Unemployment Rate, Reserve Bank of New Zealand Governor Speech. U.S ADP Employment Change and ISM Services PMI

Thursday – European Retail Sales, Bank of England Interest Rate Decision, U.S Initial Jobless Claims

Friday – Reserve Bank of Australia Monetary Policy Statement, Canadian Net Change in Employment and Ivey Purchasing Managers Index 

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