The beginning of the 3rd quarter hasn’t been smooth sailing for the crypto-industry. With Bitcoin dropping below $30,000 and Ethereum briefly touching $1700 again, despite recent recoveries, bearish pressure has continued to creep up. Now, when we begin to incorporate all the bullish and bearish indicators, we have to understand that multiple factors currently cater to the sentiment switch for the entire market.
DeFi has been a significant part of the industry as well and in this article, we will discuss how the DeFi marketplace might still be in line to drive a long-term bullish market.
Ethereum being bullish with DeFi; How does it work?
According to Glassnode, the implementation and recognition received by DeFi assets during a point of market distress are a sign of strength. From a long-term perspective, it does make sense since back in 2017, most altcoins did face a lot of bearish pressure during the drawdown.
Right now, however, data would suggest that most DeFi assets with a point of functionality are able to hold their own in terms of adoption and growth.
In fact, according to the attached charts, projects like Uniswap, Compound, Ox, 1Inch, and so on, have been able to scale due to their proper market fit. Over the last few weeks alone, aggregators have been quick to realize the importance of Decentralized Finance applications.
However, with respect to DeFi, there is one major altcoin playing its part.
Ethereum: How do exchange outflows matter?
One major aspect of Ethereum outflows is the fact that its supply is moving into its own ecosystem. With Ethereum being the base collateral for most DeFi assets, its outflow from centralized exchanges only points to its organic drift into the DeFi ecosystem.
Source: Glassnode
Similarly, governance tokens that cater to a higher level of integration have better on-chain utility which allows these assets to consistently maintain outbound flow. The aforementioned report observed,
“Tokens like SUSHI which boast strong on-chain incentives via staking to earn earning trading fees, and numerous integrations with lending markets, have seen net exchange outflows during this correction.”
It takes two to tango
Just like most altcoins are dependent on the rally triggered by Bitcoin, it is safe to infer that most DeFi tokens would prosper better alongside Ethereum, and vice versa. In 2020, most DeFi tokens acquired bullish momentum before Ethereum, and then ETH picked up rapidly in early 2021.
With Ethereum facilitating persistent net exchange outflows, the possibility of a DeFi-Ethereum season transpiring during the same timeframe remains favorably high.