With Bitcoin reaching record highs amid rising cash exchange-traded fund inflows, analysts at research and brokerage firm Bernstein expect a “big bang” DeFi recovery to come next.
While the Bitcoin rally can be attributed to spot ETFs, the broader market recovery following Bitcoin’s all-time high of around $69,000 is expected to be led by the DeFi niche. This accounts for 6 of the 10 most revenue-generating protocols. On the cryptocurrency front, Bernstein analysts Gautam Chhugani and Mahika Sapra wrote a note on Monday.
Analysts claimed that the DeFi sector was “completely wiped out” during the last cycle, playing an unsustainable yield game due to token incentive (inflation) subsidies.
This is exemplified by the collapse of the Terra ecosystem in May 2022. DeFi protocol Anchor once promised a 20% yield on TerraUSD, a stablecoin backed by Terra governance token Luna. When Luna’s token price plummeted, the rest of the Terra ecosystem followed suit, wiping out approximately $40 billion in investor equity in a matter of days.
But this time, the return on value based on fees generated by native applications is real, analysts said. Chhugani and Sapra cited Uniswap as an example in its recently proposed fee sharing mechanism for UNI token stakers. The largest decentralized spot exchange generated $2 billion in trading volume in the last 24 hours. This is more than 50% of the trading volume of centralized exchange Coinbase. It is the largest DeFi fee generating protocol, worth approximately $3.7 million per day.
The ongoing fee-share voting “could transform the token from a simple ‘voting’ token to a token with revenue earned through protocol user fees,” the analyst said. “We expect multiple DeFi protocols to follow.”
Chhugani and Sapra expressed concern about the Securities and Exchange Commission’s proposal that all cryptocurrencies except Bitcoin could be securities. However, the cryptocurrency industry sees it as a token linked to a permissionless protocol without a specific investment contract.
“This is the fundamental question in the Coinbase v. SEC case, which designates 12 tokens as securities and alleges Coinbase is an unregistered stock exchange,” Bernstein analysts said. “We believe the cryptocurrency industry is sensing an opportunity to change the ‘legal’ narrative for tokens, as recent courts have exercised more nuance than the blanket arguments typically followed by the SEC (as seen in the Ripple v. SEC case) .” Bernstein added that it is allocating 15% of its digital asset portfolio to DeFi, up 15% year-on-year.
That’s because the total value locked in DeFi has surged 50% since the beginning of the year, growing from $60 billion to more than $97 billion, according to The Block’s data dashboard.
Bitcoin hits record highs due to spot Bitcoin ETF inflows
Despite continued significant outflows from Grayscale’s converted GBTC fund, US spot Bitcoin BTC
+4.30%
ETFs continue to pile up Total net inflows — Total net inflows are now $7.4 billion. On Thursday, BlackRock’s IBIT became the first new spot Bitcoin ETF to reach $10 billion in assets under management after securing its second-largest daily inflows since its launch on January 11.
“We are not surprised that the Bitcoin market price is still recovering and we expect the decline to be shallow and buying aggressively,” Chugani and Safra said. “We continue to expect Bitcoin to surpass this year’s high and 2021 high of $69,000.”
“Furthermore, as regulations become clearer, I would not be surprised to see global asset managers moving towards possible DeFI ETFs and certain active DeFi funds in the future,” he added.
The price of Bitcoin surpassed $65,000 this morning and reached a new all-time high above €60,000 in Europe. According to The Block’s price page, Bitcoin is currently trading at $65,174, up more than 5% in the last 24 hours and more than 27% over the past week, putting it up more than 50% year-to-date.
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