In this next cycle, DeFi will likely help push ETH price to $1 trillion CoinMarketCap?
At the time the cryptocurrency market went up in 2017, quite a lot of traders and investors made a lot of money selling tokens through ICOs. And one of the reasons why the price of ETH soared is also due to the ICO because this form of crowdfunding often raises money through ETH. However, at present, things are different.
As ICOs often raised money through ETH, the asset saw a colossal surge in demand
The only reason why Ethereum reached about $ 1,400 during the 2016-2018 bubble period was undoubtedly due to the ICO – Initial Coin Offerings.
As Avi Felman, a trader at crypto fund BlockTower Capital recently explained:
The ETH all time high price is likely a red herring, and was driven by a very specific dynamic (buy ETH to place in ICOs, no sell pressure because ICO treasuries didn’t think about that). BTC had no such dynamic. When BTC reaches its new ATH hard to see ETH anywhere near its ATH
— Avi IS RIGHT (@AviFelman) June 15, 2020
ICOs are no longer as popular as they used to be. In particular, most altcoins are down more than 80% from their all-time highs. And of course, Ethereum has also lost its most significant historical price catalyst.
Will DeFi be the new catalyst for ETH price?
However, without drawing experience from the ICO, DeFi is now thought to be the next factor for Ethereum to embark on a parabolic demonstration. During the last cycle, Ethereum has been soaring and so fast that it overshadowed the $ 100 billion market cap and, at one point, threatened Bitcoin. This move is mostly due to ICOs.
According to Joseph Todaro, managing partner of Blocktown Capital, decentralized finance will do more to catalyze a bull run in Ethereum’s price than DeFi:
In 2017 ICOs aided in moving ETH beyond $100 billion marketcap
In this next cycle, Defi will likely help push ETH to $1 trillion marketcap
— Joseph Todaro (@JosephTodaro_) June 16, 2020
The $ 1 trillion market cap is about 4,000% higher than ETH’s current $ 25 billion and roughly $ 9,000. It sounds crazy, but Todaro is not the first to make such a request.
Sharing the same idea with Todaro is Chris Burniske, a partner at Placeholder Capital. According to him, DeFi will have a smaller impact on ETH than ICOs. But even lower will have some impact, and this effect will last longer than ICO because DeFi applications are still top-rated in everyday life. Furthermore, ICO fundraising only featured one of Ethereum’s properties as a financial service, though DeFi will “flex Ethereum’s ability to perform all financial services.”
Ethereum DeFi may be running into growing pains though
On June 17, 2020, the cryptocurrency community was quite worried about the hack of decentralized liquidity network Bancor.
User funds being drained due to unauthenticated safeTransferFrom() function on their new BancorNetwork contract. see: https://t.co/k1ZTADJz1g
— Hex Capital (@Hex_Capital) June 18, 2020
This will be the latest hacking of the application, as Bancor lost $ 13.5 million in cryptocurrencies (mainly Ethereum) in 2018 due to compromised smart contracts. Since then, DeFiPrime has since said that the Bancor team told them that all user funds are safe, and a white-hat attack has migrated the funds to safety. Yet this still shows how nascent this part of crypto is.
That was the first factor that affected DeFi – hacks. The second factor is latency issues. You just can’t build global scale trading systems for lots of users on POW chains. It just doesn’t work—high latency and, therefore, all kinds of negative second-order effects.
So for now, we are near a plateau for DeFi – measured in ETH terms (not USD) – until the core latency problems are solved.
And finally, the lack of fiat on-ramps, trading functionality in decentralized applications, and a lack of abilities to obtain leverage in the DeFi space as issues for this budding part of the Ethereum economy.
Therefore, the ability of DeFi to push the price of ETH higher than the ATH is extremely difficult to determine at the moment.
- Ethereum Miners Are Voting To Increase The Gas Limit Per Block To 12.5 Million To Make The Network Up To 25% Faster
- There Is Now In Excess Of $1.3 Billion Of Value Locked In Ethereum DeFi But ETH Price Has Yet To Trend Higher