DeFi on the rise: analyzing the digital currency bubble

Despite all of the exploits, the DeFi honeypot continues to grow. There is now over $14 billion locked away in DeFi platforms, and outstanding digital currency loans taken out via DeFi platforms have reached $3.08 billion. Interestingly, the DeFi sector is experiencing this growth at a time when DeFi related hacks and theft are on the rise. But why?

The bubble is back

It’s safe to say that the digital currency bubble is back. From year to date, we have seen the total market cap for the digital currency industry rocket from roughly $208 billion to $522 billion, a 151% increase in market cap. We are even seeing coins that have absolutely no utility or use experience significant price increases as a result of the new money pouring into the digital currency industry. 

But this new cycle is very different from the 2017 “crypto-mania.” This time around, a majority of the money entering the markets is coming from corporations and institutions rather than retail investors. Each group is betting that the value of the USD will decline which means that assets priced in USD will become pricier–such as digital currencies. However, long-time digital currency investors–most likely those who made their fortune on altcoins in 2017–continue to invest in DeFi coins and tokens with the belief that they will soar in value similar to altcoins back in 2017–however, that’s not going to happen.

Why won’t it happen?

The new money entering the space will most likely be investing in the coins and tokens that have easy onramps and offramps–DeFi coins and tokens do not fit this bill. There is a barrier to entry when it comes to using DeFi platforms because it requires the user to have a compatible digital currency wallet, knowledge regarding where to find the tokens, and an understanding of how to use decentralized exchanges.

Regardless, neither the tokens that will be invested in during this new hype cycle or the DeFi tokens that digital currency enthusiasts are investing in will survive into the future. None of those tokens have utility or real-world use cases. Instead, the corporations, institutions, and individuals investing in them are merely speculating on the coins and tokens increasing in value because they anticipate others to invest in the coins and tokens after they do. 

In the distant future, only the blockchain with real utility, unbounded scalability, a stable protocol, and low transaction fees–Bitcoin (BSV)–is going to be used by both enterprises and consumers daily because it will be the only feasible way to increase operational efficiency while reducing operational costs via a blockchain.

In the meantime, invest wisely. The digital currency industry is in a bubble, but as we know from past experience, there is no use in trying to tilt against a bubble, especially when it is at its beginning stages.