Crypto markets soared last week as Bitcoin rallied with other large cap digital assets. Similar to the Bitcoin bull run of 2017, the world’s largest cryptocurrency is taking on the US Dollar. Additionally, DeFi markets continue to surge as trading volumes hit all time highs in July.
Global cryptocurrency markets added $32 billion in value last week as total market capitalization surpassed $338 billion. Many large cap digital assets posted double digit returns last week, with Litecoin, XRP, Ethereum, and Bitcoin being the top performers. Despite many altcoins surging last week, Bitcoins market dominance shot above ~ 62%. Earlier last week, Bitcoin was battling to maintain ~ 60% dominance levels which was outlined by VF as a yearly low. As mentioned in a previous report, Bitcoins volatility was near 2 year lows, and also experienced a 60 day downfall. Positive indicators surfaced last week with Bitcoins volatility displaying a slight push off November 2018 lows.
|Cryptocurrency||7 Day Return (As of Friday)|
Bitcoin Takes On The US Dollar
Based on historical data, Bitcoins rally in 2020 can be directly correlated to the US Dollar. COVID-19 has stressed the US dollar during unprecedented levels of monetary and fiscal stimulus. The US Dollar is struggling to rebound, especially in an environment where second quarter GDP diminished -32.9%. During a time when the USD is experiencing the largest monthly drop in a decade, Bitcoin is expanding.
If we look at historical trends, we can see that Bitcoin thrives off a lower dollar. During the crypto boom in 2017, Bitcoin cracked an all-time high of $19,498. During the Bitcoin bull market, the Dollar Index ( DXY ) was contracting from 100, all the way down to 88. It is important to note that a Dollar Index of 88 represented a 2014 low. During the carnage of the dollar, Bitcoin was reaching new horizons. The Dollar started its mass downtrend in October 2017, right around the time when Bitcoin was trading at $8,000. As the Dollar Index contracted all the way through January 2018, Bitcoins bull market pushed it to all-time highs. If we take a look at even earlier data, we will see that Bitcoin built up its original momentum in 2016 when the Dollar Index went on a large sell-off from December 2016 until August 2017.
As discussed above, macro issues have put a strain on the US Dollar, causing it to hit 2 year lows this year. We are now seeing a very similar setup to 2017 where Bitcoin is being fueled by a devalued dollar. The USD experienced a small reversal to conclude last week, but with more stimulus on the way, many analysts believe it can fall further. In this environment, and based on historical data, this could very well propel Bitcoin to all-time highs. It is evident that investors are beginning to swap out devalued USD for Bitcoin inventory.
Other Weekly News – DeFi Continues Its Push
The Decentralized Finance ( DeFi ) markets continue to impress in 2020. As the industry shifts to “open finance” through lending and derivatives trading, various digital assets tied to these platforms have reached all-time highs. More specifically, “yield bearing tokens” have experienced exponential growth as investors flock to tokens offering high yields in a low interest rate environment. In the DeFi space this year, another activity gaining traction is “yield farming.” As investors continue to seek yield, they now perform services through DeFi applications. Investors are compensated on the collateral they provide in the form of fixed or variable yield. Within decentralized exchanges, yield farming is becoming popular for providing liquidity. Some decentralized exchanges involved in yield farming include Uniswap, Curve Finance, and Balancer.
As a result, decentralized exchange trading volume has recently put in all-time highs. If we take a look at DefiPrime, we can see the exponential growth in July volume. Monthly DEX volume in July was over $4 billion which was significantly higher than any prior month. As exchanges continue to diverge into yield farming, it is expected that activity will continue to inflate. With DeFi projects offering significantly higher yields that traditional markets, many investors are willing to take the risk. In terms of risk vs reward, some DeFi projects are now offering 100X higher yields than traditional market rates.
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