Could DeFi crypto be a bubble?
Except for Bitcoin’s meteoric return to $12,000 from the depths of $3,000 during Black Thursday back in March of this year, the absolute success story of 2020 has got to be DeFi, or Decentralized Finance. Thanks to DeFi programs, coins like Chainlink and Ampleforth have shot to fame and to massive market valuations. CoinMarketCap even started a ranking of the most popular DeFi coins, with Chainlink topping the board of course.
However, more and more crypto annalists are warning for the possible bubble forming in DeFi coins.
What are bubbles?
Bubbles in finance, as some of you may know, are formed when exuberance in investing is displayed, aka when more people think that a good is worth something and that this good will rise in value because of this logic. The most famous one of all in history was the Dutch Tulip Bubble, turned into a movie called Tulip Fever in 2017. People would offer more for a tulip flower than they would for a house at a certain point. Then it all came crashing down, people were ruined.
Yam Finance warning
As an example, Forbes journalist Billy Bambrough (discussing Chainlink’s rise) pointed out that earlier this week, a DeFi project called Yam shot from zero to a $60 million valuation in a matter of hours. That was Tuesday.
He probably spoke too soon, because by Wednesday another $500 million was invested in it and the coin’s value topped at $167.
After a bug in it’s code was found, the price went back to near zero. The developer claims he was sorry he failed. At the moment of writing, he’s working on Version 2 of the app.
Signs on the wall of course.
Vitalik, who is a known voice in crypto, stated:
You do NOT have to participate in “the latest hot defi thing” to be in Ethereum.
Already last month, another well known crypto enthusiast, namely Ivan on Tech, who has about half a million followers on various social media channels and constantly speaks about tech and crypto, warned about the massive possible bubble that could be forming in the world of DeFi.
The surge in price of various DeFi tokens does indeed bring back memories of the crazy valuations last seen during the winter of 2017-2018, when the Bitcoin price hit almost $20,000 and several other altcoins experienced crazy flows. At that time, the rumour of a possible ICO (initial coin offering) was enough to send anyone with a coin on offer into the stratosphere when it came to his chart.
A few months later, around the spring of 2018, some of those charts looked a lot less appealing of course.
2020 bubble redux?
By now, the world of crypto has become a bit more like classic finance, given that various Wall Street investors decided to invest part of their portfolio into Bitcoin, which is seen as a safe haven investment.
However, the trust from Wall Street could quickly be lost, if crypto turns out to have made a bubble industry on the side. Let’s therefore hope that DeFi turns out alright, because if all these disaster warnings we are reading as of late turn out right, this could be another big blow to the reputation of crypto. And at this moment it’s all going so well… or is it?