Cryptocurrency markets are sending strong signals right now that the innovations coming from fast-emerging technologies like decentralized finance, or DeFi, could shake up the global order of banks and money managers and insurance companies.
A recurring theme at CoinDesk's invest: ethereum economy virtual conference Wednesday was just how much money there is to be made in the fast-growing digital-asset industry.
Talk of returns and yields was salted throughout the technical discussions of protocols and governance systems and blockchain arcana like "layer 1" and "layer 2" and "rollups" and "shards."
Even traditional-market regulators are starting to acknowledge the growth possibilities that cryptocurrency bulls have been betting on for years.
The technological movement is "obviously revolutionary, and I think at the end of the day could lead to a massive disintermediation of the financial system and the traditional players,” Heath Tarbert, chairman of the U.S. Commodity Futures Trading Commission, told CoinDesk Chief Content Officer Michael Casey. (Link here to the video interview.)
DeFi, in which developers are using open-source software to create semi-automated lending and trading systems atop blockchain networks, proved its potential in recent months as projects like Compound and Uniswap attracted billions of dollars of crypto collateral. A series of "yield farming" projects such as Yearn.Finance have made it easy to rack up extra token rewards, a way of juicing fixed-income returns in digital-asset markets.
The crypto industry appears to have emerged from its larval phase into the pupal: The form is taking shape, but coming-of-age challenges are yet to be overcome, from reliability to marketing and, of course, scaling to the point where millions of users can be accommodated.
There are steep risks, as with the past few months' flameouts of DeFi projects like SushiSwap, whose founder suddenly decided to cash out tokens at the top of the market, crashing the market, and Yam, which succumbed to a bug.
"In many cases you can risk permanent loss of your capital by participating in some of these activities," Ryan Watkins, a senior research analyst at Messari, said on one of the panels.
And it's premature to compare the scale of cryptocurrencies to the traditional financial system.
“Today, 99.9% of the money is still in fiat,” Binance CEO Changpeng "CZ" Zhao said in a one-on-one session with journalist Leigh Cuen during the CoinDesk conference. “We still need gateways.”
"The future is dynamic portfolios that are expensive to construct in traditional finance," said Tarun Chitra, CEO of Gauntlet, a simulation platform for crypto networks. His Zoom feed was the most colorful by far:
Another company, Blox, plans to help customers pool ether (ETH) to get past a threshold needed to "stake" on the Ethereum blockchain. Staking is similar to holding an interest-bearing deposit and will go live with a major upgrade purportedly to arrive by the end of 2020.
But annual returns could range from 4.6% to 10.3%, CoinDesk's Sebastian Sinclair wrote. Compare that with the 0.01% offered on a JPMorgan Chase savings account.
In one of the panels at the conference, David Hoffman, founding father of the DeFi-focused publication Bankless, mapped out the bullish case for ether and said prices could climb to $10,000 or higher, from about $380 now.
In a subsequent session, Vishal Shah, founder and CEO of the crypto derivatives exchange Alpha5, mapped out the bearish case but concluded by saying prices could double under that scenario.
Ether prices have already tripled this year. The lofty valuations might just be hype. Or they might be a sign that cryptocurrency traders are looking ahead to the industry's maturation.
Key indicators like the 14-day relative strength index remain biased bullish. Additionally, the five- and 10-day averages continue to trend north, indicating the path of least resistance is to the higher side.
From the macro perspective, the rising stockpile of the global negative-yielding debt is a major bullish development for perceived inflation-hedges or store of value assets like bitcoin. "Going forward, the search for yield is likely to be a major driver of growth in bitcoins price and adoption," Stack Fund's CEO Matthew Dibb told CoinDesk in a WhatsApp chat.
Further, recent disclosures of bitcoin holdings by payments company Square and Stone Ridge Asset Management has validated the cryptocurrency's appeal as an alternative investment.
As such, odds appear stacked in favor of a continued bull run. That said, in the short run the cryptocurrency remains vulnerable to sell-offs in the global equity markets. At press time, bitcoin is trading in the red near $11,340.
- Omkar Godbole
Grayscale (owned by CoinDesk parent Digital Currency Group) raises $1B across all products in 3Q. (CoinDesk)
U.S. Justice Department's 83-page cryptocurrency enforcement framework is shot across the bow to international exchanges. (CoinDesk)
The latest on the economy and traditional finance
Federal Reserve vice chair says it's an "open question" whether U.S. central bank will have to keep buying Treasury bonds indefinitely. (WSJ)
The world's biggest economies have extended a program allowing the poorest nations to suspend debt repayments. (WSJ)
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