Hi there crypto market! It's me again - your forgotten voice of reason.
I'm here to have one final say before you all go completely and irrecoverably berserk... again.
In case you've spent the entire Covid-19 period in a drunken stupor, allow me bring you up to speed: the crypto community has gone crazy for DeFi.
Not just "regular crazy" either, but "crazy crazy". And that "crazy crazy" is only going to get worse - much worse...
Let's clear something up:
Decentralised Finance is is great! Hell, I'd go so far as to say that it's FANTASTIC!
It is high time that the banks lost their monopoly on the issuing of money-related products, it is high time that governments and central banks lost the ability to control the population through the manipulation of fiat currencies, it is high time that people had a real choice of who to turn to when they need to e.g take out a loan.
BUT!
THAT DOES NOT AUTOMATICALLY MEAN THAT DEFI = "LAMBO/MOON"!
The state of DeFi
Look around the cryptoverse, "DeFi, DeFi, DeFi" - it's ALL you hear! Ethereum is popular because of DeFi, coin ranking websites have independent DeFi sections, MCO, Chainlink, Aave, Compound - these are the names of the coins on everyone's lips. And it doesn't stop there...
...because if you're an exchange then you want in on the DeFi action too. Old-fashioned "soft" staking is no longer good enough, you need special lending platforms so that your customers can DeFi themselves to their heart's content. But it doesn't stop there either...
...because if you're a non-DeFi coin that sees which way the wind is blowing (or at least the short-term gust), you don't want to be left behind. So you add DeFi into your non-DeFi coin, just so that you can also shout "DeFi!" and ride the DeFi pump wave...
...and this, ladies and gentlemen, is not healthy.
The problem
The cryptoverse is big, the cryptoverse is new. There are MANY different coins and tokens out there, most of them still very small, each with its own purpose. While coins are often in competition with one another, and while many of them will still fail, the different crypto products are supposed to be complimentary: they are supposed to supplement and support one another - enabling the population to replace existing fiat-based and centralised service providers with crypto-based ones.
We NEED our logistics tracking coins. We NEED our medical data-storage and transfer coins. We NEED our banking coins. We NEED car history coins, advertising coins, mining coins, cloud storage coins and all the other coins which are revolutionising the possibilities available to us.
We DO NOT NEED our dental care coin to become a money lender! We DO NOT NEED our advertising coin to become a money lender! We DO NOT NEED our exchanges to try to become banks!
Lambo!/Moon!
The biggest problem now is the hype associated with the term "DeFi". We've seen this before. A year or two ago people were throwing money at any company which had the word "blockchain" in its name. Companies literally renamed themselves in order to ride that hype wave.
Closer to home, crypto investors would do well to remember the ICO hype of late 2017/early 2018. Any and every ICO had only to release a whitepaper in order to attract millions (if not billions!) of dollars of investment. ICOs often sold out within minutes.
Later on we experienced a resurgence in ICOs in the form of re-branded "IEOs", a now rare term which simply means "ICO launched on an exchange platform". IEOs didn't achieve the same hype levels that ICOs did, but they DID achieve their hype during the mother of all bear markets - which says something.
So when DeFi comes along and suddenly everyone HAS to have it, it is disturbing to watch how few people seem concerned that "DeFi" is just the 2020 version of "ICO".
Again I tell you: that in itself is not bad. I LOVED ICOs and I participated in MANY of them, but most of them DID fail! Some DeFi is great - just like some ICOs were, but most DeFi is just surviving on hype - as ICOs once did.
When everyone is competing for the same slice of the pie, then you may rest assured that most people will not succeed in getting a piece of that pie.
Further analysis
Be your own bank
The idea behind crypto - and I should not have to remind you of this - is to be your own bank! It isn't to switch to decentralised banks! It isn't to become a loan shark or to survive on crypto loans. Loan sharks are the scum of the Earth - playing a zero-sum lending game at the expense of those who lose. Read Satoshi's whitepaper again people! The idea behind crypto is to break fiat dominance in its entirety. It's to create a world in which the common man does not need loans in order to survive!
Want the brutal truth about loans in general?
In 99% of cases: if you can't afford to pay for something with the money you have now, you sure as hell can't afford to pay the instalments on it later!
Learn to budget and only to buy that which you can afford, when you can afford it.
Debt is a tool used to transfer money from the poor to the rich. Personally I believe that the less you have to do with it, the better.
Watch the volume
Look at the daily traded volumes of DeFi coins relative to other coins of similar market caps. There is a disconnect there. Call it a "bearish divergence". Did you notice it on your own, or did you need me to point it out? If you needed me to point it out, consider yourself at risk of being misled by market hype.
Lending
What is "Defi" really? What does it mean? What does it entail?
Well, there is DeFi that deals with crypto lending, and then we have lending, also lending, lending by platforms, more lending, crypto lending, lending crypto, cryptocurrency lending and lending.
I dare you to prove me wrong...
Do we really need 100 lending coins?
Why?
Is that sustainable?
I know the answers to those questions, and I suspect that deep down, you do too.
*(Yes I'm exaggerating a little for comedic effect, but really not by much...)*
Tracking DeFi
I mentioned the DeFi sections of coin tracking websites, but do these even serve a real purpose? As I said earlier, non-DeFi coins are hopping on the DeFi bandwagon left, right and centre. So browsing through these tables of DeFi coins, I notice a few obvious omissions, a few more less obvious ones, and many not-so-obvious ones. In other words, many of the coins which offer lending facilities are not listed - at least not yet. Many exchange coins - strongly tied to DeFi products - are not listed. Would it make sense to list them? I see coins on the list which are "less DeFi" than some others which are absent. Should lists like this even exist at all? Do they provide value, or are they just a means of catering to the current hype?
Conclusion
DEFI IS A BUBBLE
There you go, that's your simple explanation.
DeFi hype is way out of hand. There are too many competing DeFi coins/products for a market this size. Everyone trying to jump on the DeFi bandwagon is problematic and only adds to the hype/bubble.
There IS room for crypto DeFi in the future, lots of it. But this is madness: too much, too soon. Sure DeFi will make you money, but what about all the other applications of crypto? Why are you not just as excited about e.g. the logistics applications of crypto? Why are you not diving into VeChain or Waltonchain like you're diving into MCO or Compound?
I'll tell you why: because there is a hype bubble and you're playing the ICO game. Again.
Yours in crypto
Bit Brain
All charts made by Bit Brain with TradingView
"The secret to success: find out where people are going and get there first"
~ Mark Twain
"Crypto does not require institutional investment to succeed; institutions require crypto investments to remain successful"
~ Bit Brain
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Thanks for the warning, BB.
How would you compare this to the bubbliness of 2017 in alt coins? Similar? If we get into another bull run, how will this compare or be affected?
Posted using TIMM (MentorMarket.io)
Tricky, there isn't a direct correlation. In 2017 we had the run first, then the ICO hype. One could argue that the run started because of BTC hype, but few would claim that it was altcoin driven.
It seems that this time we're getting hype first, then perhaps a run. I surmise that a bull run may level things out a bit. When the prices of everything start to rise, then the hype should become distributed more evenly and "DeFi" as a buzzword should calm down a bit - at least in relative terms.
My fear is that people dive headlong into DeFi merely because it says "DeFi" on the box, and that they then get hurt. That kind of thing is bad for crypto, it makes the class look overly speculative and unnecessarily volatile.
I guess this is all a part of young growth in the sector, but it's annoying to watch because it doesn't have to happen this way.
Indeed. I just don't want to see people lose money in failed projects.
Posted Using LeoFinance