Having suffered a spectacular fall earlier this year from around $64,000 to just over $30,000 in around two months, Bitcoin is very much back in black. At the time of writing (Friday, October 8), one BTC is trading above $54,000, edging closer to its all-time high set back in April. As speculation on its direction of travel continues, there are a number of economic factors and trends that suggest Bitcoin could be heading for that elusive $100,000 mark.
In recent weeks, some analysts have suggested that we are beginning to see a decoupling of the global stock market from Bitcoin, which would support the long-peddled but not yet proven narrative that Bitcoin is an uncorrelated asset. The analysts have pointed out that, while the S&P 500 index is down 2.53% over the past month to October 7 (source: Google Finance), Bitcoin has been soaring to new highs.
Over the past 30 days, the price of Bitcoin has risen from $46,665 on September 8 to $55,458 as of October 8 – a 19% increase.
In the current economic environment, interest rates across the developed world remain at rock bottom levels and inflation continues to rise. This means investors are increasingly searching for assets that can deliver returns uncorrelated to traditional financial markets, however these are becoming increasingly difficult to find.
The internet economy and crypto: Why Bitcoin is only just beginning
Yet in recent weeks, Bitcoin has done just that. As observed last week by Bitcoin Archive on Twitter, Bitcoin is an “uncorrelated asset in a class of its own”, rising when the NASDAQ and Dow Jones indices – key indicators of the strength of the US stock market – were both in the red. If Bitcoin can secure a position as a hedge during times of market turmoil, then its future price rises are surely guaranteed.
The perfect hedge?
But this is not the only reason for the increasingly prevalent headlines in the media suggesting that “something big” might be happening with Bitcoin. Having passed the all-important $1 trillion market capitalization milestone, Bitcoin is becoming “too large to ignore”, even for the likes of the Bank of America, which recently acknowledged the importance of BTC as a financial asset in its own right.
As such, big institutional investors are increasingly gaining exposure to the world’s largest digital asset. According to data from Bitcoin Treasuries, companies with bitcoin on their balance sheets hold almost 8% of the total Bitcoin supply, some 1,660,473 BTC.
Why we should all still be investing in Bitcoin
In fact, according to JP Morgan, institutional investors are the biggest driver for the recent surge in Bitcoin’s price, as they look far and wide for investments that provide a hedge against inflation. One of the original use cases for Bitcoin was as an alternative to currencies in countries with hyperinflation, so it is no surprise it is coming into its own in the current economic environment.
It looks like both institutions and individual investors are turning to Bitcoin over gold as a safe-haven asset class. Over the last 30 days, the price of gold has fallen in line with the US stock market, undermining its value as an uncorrelated asset.
Last week also saw some speculation on the potential launch of several Bitcoin ETFs. As many as four Bitcoin futures ETFs could be approved by the US Securities and Exchange Commission (SEC) in the next few weeks, according to Bloomberg. In the news-hungry cryptocurrency markets, such speculation has the power to drive prices higher.
Meanwhile, Bitcoin has shrugged off China’s blanket ban on cryptocurrency transactions. It helps, of course, that the chairman of the SEC, Gary Gensler, has explicitly stated that the US has no intention to ban crypto. As such, a reduction in China-based Bitcoin mining is by no means bad news for the digital currency, with other jurisdictions boasting more favorable regulatory regimes.
How to mitigate Bitcoin losses during a bear market
Against this favorable backdrop, some market participants are expecting something big from Bitcoin. As it rises from the ashes once again after a volatile few months, supporters are seeing this as proof of the legitimacy of Bitcoin as an investment option. If they turn out to be correct, could we see Bitcoin hit a new all-time high before the year is over?
Wherever the price of Bitcoin goes, we at NEB App strive to offer our investors an opportunity to take advantage of BTC’s rise on the upside and mitigate losses on the downside. With our NEB App Bitcoin Fund, which is once again open for deposits until 07:00 UTC on Friday, October 15, or until a fund cap of 1,500 BTC is reached, investors can do just that, with a maximum APY of 12%. All details can be found here.
Q. Are there any risks associated with DeFi lending?
A. With a clear impression of how beneficial DeFi lending could be, let’s move on to discuss the DeFi lending risks. DeFi lending is not as straightforward as you think it to be. First, you need to check if the DeFi lending protocols are safe and have met all the levels of security. If not, then it becomes easier for the hackers to exploit the vulnerabilities in the DeFi protocols by stealing the assets of the users.
Here are the 3 types of DeFi lending risks:
1. DeFi rug pulls: Imagine yourself standing on a rug, and suddenly someone pulls it with full force. The DeFi rug pulls are something very similar to this. Although DeFi looks quite promising, there is no set of clear regulations for the ecosystem.
Thus, the investors must place their trust in the platforms on which they are willing to purchase tokens or lend their assets. However, the investors can also fall prey to cyber breaches in the shape of rug pull schemes.
2. Impermanent loss: The volatile nature of the crypto tokens is the main reason behind the impermanent loss. The investors are required to lock their assets in the liquidity pools for the DeFi lending process, and the change in the asset price after depositing them in the pool thereby creates an impermanent loss.
The impermanent loss might also emerge from the fact that the DeFi pools considerably depend on the arbitrage traders for aligning the token prices in the pool with the existing market value.
3. Flash loan attacks: Flash loans are a new type of loan in the DeFi space that does not require any kind of collateral. This is also known as DeFi loan without collateral. You can find two distinct types of DeFi crypto loan in the form of secured and unsecured loans in the conventional banking space. Secured loans are larger and require specific collateral like property, investment, car, or any other big asset. Banks then evaluate the client’s credibility by utilizing tools like credit reports and scores in the entire loan process.
On the other hand, unsecured loans mainly involve the disbursement of a smaller amount of money which means DeFi loan without collateral. Flash loans can offer a formidable risk in DeFi lending as malicious attacks can happen. Few agents can also utilize flash loans to exploit the defending protocols for their own personal interests.
Q. What are some of the DeFi lending protocols?
A. The DeFi lending protocols are also known as the DeFi lending platforms that allow the users to secure a DeFi loan. The loan can be in the form of any type of cryptocurrency on the platform. For securing a DeFi loan, the borrower must deposit a collateral type that is usually around the loan value of 150% to 200%.
Q. How can one get a loan from DeFi?
A. Anyone can apply for a DeFi loan and get it. The borrower needs to use a DeFi lending platform like Compound or Aave. The borrower will also be required to deposit collateral which is yet another type of cryptocurrency, in order to secure a DeFi crypto loan.
Q. Is Ethereum a type of DeFi coin?
A. DeFi is currently making its way into different types of complex financial transactions. It is mainly powered by the decentralized apps known as “dapps,” or other programs called “protocols.” Together, dapps and protocols handle the main transactions in the two main cryptocurrencies, Ethereum (ETH) and Bitcoin (BTC).
Q. What is a DeFi dApp?
A. DeFi is the short form of the term ‘Decentralized Finance’ which mainly refers to the financial smart contract, DApps (decentralized applications), and all other types of financial protocols built on blockchain. Typically, there are 5 main categories of DeFi, which include lending and borrowing, derivatives, dex (decentralized exchange), assets, and payments.
Q. What is the key difference between DeFi and NFT?
A. The key difference between DeFi and NFT is that DeFi is about the internet-based financial system, whereas NFT is about individual digital assets.