The broader focus remains on the never-ending trade talks between the US and China, with analysts from Goldman Sachs noting over the weekend that fears of the US-China trade war leading to a recession are increasing and that the firm no longer expects a trade deal between the world’s two largest economies before the 2020 US presidential election. The widespread media coverage and the perceived implications of capital flows has prompted a number of crypto market commentators to speculate the advent of another squeeze higher in prices. However, perhaps overwhelmed by all the media noise, a majority of traders are overlooking the recent developments in the Decentralised Finance (DeFi) market. Specially, the dramatic collapse in the amount of USD locked in Maker, which has now fallen to below $300mln. The total amount of ETH locked in the credit ecosystem now stands at 1.25% while the number had been 2.11% earlier in the year.
Source: Defi Pulse
As has been highlighted in recent publications, it is only a matter of time before crypto lenders, especially those that cater to retail market participants, will begin to feel the cash squeeze amid the unfavourable Bitcoin futures structure. The contango, which has been the dominant structure since early spring, is actually a very dangerous phenomenon for such platforms because most of the deposits are in crypto and cannot be sterilized to USD or BTC, which creates a problem for lenders trying to hedge their exposure and prevent customers from fleeing. The unsustainable option is to subsidize the interest rate from their ICO or VC raise. Month-to-date, Ethereum is nearly unchanged, while Bitcoin price is up 13%, however, any assumptions that BTC is isolated from this DeFi unwind may prove to be premature. Another issue worth considering for DeFi apps is their lack of 3rd party audits. Growing calls for greater scrutiny of such apps will likely result in more outflows, which will be net negative for both BTC and ETH alike.
Looking elsewhere, Tron (TRX) founder Justin Sun has said that getting his cryptocurrency listed on the American version of Binance or Coinbase is his company’s number one priority. This comes amid growing concerns among investors reacting to the reports that United States citizens will be unable to trade TRX on Binance. Year-to-date TRON is up just under 10% and has recently lost its place among top-10 crypto assets. However, over the weekend, TRON has announced the release of a sidechain scaling solution, the Sun Network, which is a scaling solution designed to enhance and ensure the supposedly unlimited scaling capacity of the Tron mainnet. This will purportedly let DApps consume less energy and run with higher security and efficiency on Tron. The development should alleviate some of the selling pressure, at least in the short-term but it will require exchange listing progress to revive the fortune of the once shining crypto asset.
Thank you for reading,
The BeQuant’s Analytics team