DeFi’s Resurgence & Bitcoin’s Most Recent Stamp of Approval: A Data Perspective by IntoTheBlock

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Every week, IntoTheBlock brings you on-chain analysis of top news stories in the crypto space. Leveraging blockchain’s public nature, IntoTheBlock’s machine learning algorithms extract key data that provide a deeper dive into the major developments in the industry. 

This week, we cover the recent comeback from DeFi tokens and their strong on-chain fundamentals. As well, we go over Bitcoin’s investment from a Wall Street legend and its growing appeal among institutional investors.

DeFi’s Resurgence

After two months of downward price action, DeFi tokens have bounced back. In the aftermath of the so-called summer of DeFi, some of the top governance tokens had retraced between 60-80%. However, within a matter of days, many of these have recovered a significant portion of these losses. Throughout the DeFi bear market of the last few months, protocol metrics have managed to stay strong in spite of price performance.

Having bottomed on Nov. 4 at under $5 billion, DeFi governance tokens have managed to grow to $6.8 billion in aggregate market cap within less than a week. The total sector growth of over 35% has been led by “bluechip” tokens such as Aave and yearn.finance, both of which increased by over 150%. 

Despite their negative price action in September and October, several DeFi protocols actually grew in terms of key on-chain metrics. For instance, Compound saw a large divergence between what price and protocol metrics were showing. 

As a lending protocol, Compound’s main supply-side metric is the liquidity supplied by lenders to the protocol. The total supply provided to Compound has been on a steady uptrend, reaching new highs throughout October while its governance token was crashing.

This growth has led Compound into becoming the second DeFi protocol with most liquidity supplied only behind Uniswap. At the same time, demand for credit through Compound also managed to grow during the DeFi bear market. The total amount borrowed by Compound users surpassed the $1 billion mark in early October and is now at over $1.5 billion.

Similarly, Uniswap has been able to sustain its key metrics at a high level. Trading volume and fees for the decentralized exchange (DEX) have been on a downward trend, but are still significantly higher than they were in August, when volumes only surpassed $200 million in a couple of days.

There was an outlier on Oct. 26, when a spike of over $2 billion was related to flash loans used in Harvest Finance’s exploit. This day was very profitable for liquidity providers, who earned $6.6 million in fees. The consistent level of high fees, along with the UNI liquidity mining rewards, have incentivized strong growth in its liquidity supplied by liquidity providers (LPs). As a result, Uniswap has led DeFi forward with approximately $3.3 billion in liquidity provided at the time of writing. 

Overall, the DeFi bear market saw token prices and protocol fundamentals move in opposite directions. As crypto markets shifted into a risk-on environment, DeFi tokens converged back towards their key metrics. Ultimately, the strong rebound and protocol indicators suggest that interest in DeFi is here to stay.

Wall Street Legend Discloses Bitcoin Position

Bitcoin has been on a tear this fall. Having increased over 43% since October, Bitcoin has outperformed major stock indices and commodities. This increase has been fueled by strong institutional interest and bullish developments from the likes of PayPal. 

Earlier this year, firms such as Square and MicroStrategy purchased Bitcoin, while renown hedge fund managers like Paul Tudor Jones did so too. The latest to join this club is Stanley Druckenmiller, the billionaire investor known for managing George Soros’s fund for over 10 years. 

In a CNBC interview, Stanley Druckenmiller stated that “it [Bitcoin] could be an asset class that has a lot of attraction as a store of value to both millennials and to the new West Coast money,” referring to Bitcoin’s appeal among young people and in the tech industry. He added, “I own many many more times gold than I own Bitcoin, but frankly if the gold bet works, the Bitcoin bet will probably work better.” 

On that day, Bitcoin network activity set a new two-year high:

Despite daily active addresses reaching its highest level since January 2018, Bitcoin’s price remained stable around the $15,000 mark. This increase in activity may or may not be due to Stanley Druckenmiller’s statement, but it does highlight Bitcoin’s prevalence among traditional finance heavy weights. 

Similarly, a new JPMorgan report has cited Bitcoin’s growing interest among institutional investors. Particularly, it mentions demand from family offices looking at Bitcoin as an alternative to gold. The trend in increase among institutional investors is reflected in Bitcoin on-chain transactions volume.

Large transactions, which IntoTheBlock classifies as those of $100,000, can act as a proxy to large players’ trading activity. As seen on the image above, trading activity among high networth individuals and institutions has been on an upward trend all year. 

Stanley Druckenmiller’s recent disclosure of his Bitcoin position further solidifies this pattern. As Bitcoin continues to gain ground as a store of value and alternative to gold, Bitcoin on-chain metrics show strength and demand from investors. Ultimately, all eyes are on $20,000 as Bitcoin approaches its previous all-time high price.

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