While Bitcoin was trading sideways, small-cap altcoins, decentralized oracles, and DeFi tokens were the stand out crypto market performers for several months.
However, as the first-ever cryptocurrency and Ethereum began pumping over the last week, DeFi projects were decimated. Has the latest rally in majors exposed decentralized finance projects as nothing more than hype?
Ethereum and Bitcoin Explode Through Resistance As the Crypto Market Catches Fire Again
The cryptocurrency market may have just begun a new uptrend after years of a bear market.
Bitcoin’s halving has passed, and some of the most important buy signals in the asset’s history have since triggered. All that was left, was for the leading cryptocurrency by market cap to break free from its sideways trading range and take out resistance at $10,000.
Yesterday, the top crypto asset did just that and surged sharply to as high as $11,400 at the rally’s current peak.
Related Reading | This Golden Bull Market Factor Predicts Bitcoin Will Rocket to $14k
Ahead of Bitcoin’s breakout, major altcoins began surging, starting with Ethereum and XRP. Litecoin soon followed with an over 10% gain on the day. All three major crypto altcoins are up well over 15% on the month. Bitcoin did similar numbers just yesterday alone.
During the massive spike in Bitcoin and Ethereum, various altcoins that had previously captured most of the crypto market capital started to plummet.
Top projects like Chainlink, and various DeFi tokens that had prior to the move been the talk of the crypto industry, were suddenly correcting by 20% or more across the board.
This is due to what one crypto analyst and fund manager says is the two top crypto giants exposing the DeFi hype train for what it truly was: overhyped
0/ A small move in $BTC has already created ruptures in a number of speculative DeFi assets with some falling over 20% in a day. A further rotation of capital into $BTC and $ETH will likely expose some of the DeFi projects that are overhyped.
— SpartanBlack (@SpartanBlack_1) July 27, 2020
DeFi Overhyped, Profits Rotate Out Of Budding Projects Into BTC and Major Altcoins
According to a former Goldman Sachs alum and partner at The Spartan Group – a crypto hedge fund – the “small” move in Bitcoin and Ethereum has exposed the DeFi boom as “overhyped.”
The analyst says that Compound sparked the initial DeFi capital rotation, thanks to yield farming and what they call the segment’s “eureka moment.” It caused a wild push for liquidity, which was achieved by “juicing returns” on farming.
Investors piled on as valuations and yields went up, not thinking about any potential risk associated with the projects. Hype has now caused valuations to outpace sustainable growth in the assets, and a correction is taking place.
Bitcoin & Ethereum Versus DeFi Tokens Comparison Chart | Source: TradingView
This could lead to a downward spiral effect, as investors dump the DeFi tokens when the trend fails to provide the profits that first drove them there.
Related Reading | Be Wary Searching For The Next DeFi Star Warns Crypto Advisor
Price charts of DeFi tokens compared to Bitcoin and Ethereum (pictured above) perfectly reflect this and show that the decentralized finance movement has a lot more growing up to do before valuations can withstand a pump from the top two cryptocurrency market powerhouses.