From NFTs (non-fungible tokens) to decentralized finance or DeFi, the selloff in some of the previously hottest sub segments of an already speculative and volatile asset class has been nothing short of spectacular.- So while benchmark cryptocurrencies like bitcoin and ether appear to be holding relatively steady despite the volatility elsewhere, peak beneath the hood and some of the more speculative cryptocurrencies are painting an entirely different picture.
While markets in general have been volatile these past few weeks, there are few signs of a come down from the optimism that has come with vaccines and a recovering global economy.
But investors are paying more attention to the fact that like Atlas a tragic figure from Greek mythology condemned to hold up the sky for eternity, a handful of stocks are keeping sentiment buoyant on benchmark indices.
Take the S&P 500 for instance, where just five companies account for 35% of the index’s gain for the entire year, whereas the selloff in everything from stay-at-home exercise bicycles (no names mentioned here) and speculative SPACs has been brutal.
A similar pattern is unfolding in the cryptosphere (as no one should call it) as well.
From NFTs (non-fungible tokens) to decentralized finance or DeFi, the selloff in some of the previously hottest sub segments of an already speculative and volatile asset class has been nothing short of spectacular.
So while benchmark cryptocurrencies like bitcoin and ether appear to be holding relatively steady despite the volatility elsewhere, peak beneath the hood and some of the more speculative cryptocurrencies are painting an entirely different picture.
DeFi stalwarts like Aave, Balancer, Compound, Sushi, Synthetix, Uniswap, Year and Badger have all gotten clobbered and are showing few signs of rebounding, while volumes in the once white hot NFT space have all but fallen off a cliff.
And while bitcoin is still down from its all-time-high, it’s still managed to return around 70% for this year, compared with absolute losses in the even more speculative corners of the cryptocurrency market.
Part of the reason for this of course is that when risk sentiment comes off the market, traders would rather be in the more “reliable” cryptocurrencies like bitcoin and ether, for which there is an assumption a buyer would exist at a certain price, whereas those same assumptions can’t necessarily be extended to the so-called altcoins, which are just paving their way forward.
DeFi also tends to track the broader market sentiment as well, and does particularly well during periods of euphoria and when the cryptocurrency market as a whole rallies strongly, with the use of some of the tools like flash loans, that are peculiar to the DeFi sector.
Making matters worse, DeFi tokens also tend to be concentrated in the hands of a very small group of holders (or hodlers if you prefer) and that means that a sneeze by one, results in a pandemic across the space.
