Dispatch #4: From a Summer of DeFi to an Autumn of Bitcoin

Oct 01, 2020•4 min read

In this patch of your weekly Dispatch:

  • A narrative shift from ETH back to BTC
  • SEC orders Salt Lending to pay back its ICO
  • DeFi’s first pre-release hack

The Big Idea

After a Summer of DeFi, are we Heading Back Towards an Autumn of Bitcoin?

DeFi was unarguably the breakout crypto focus of the summer. Between July 1 and September 1, the total value locked jumped from $2B to $9.6B. The space dominated the narrative with concepts like “yield farming” and “liquidity mining” becoming de rigueur and individual assets like YFI achieving unbelievable prices.

September saw something of a narrative shift. The total value locked is up, but only by $1.5B rather than the nearly $4B per month that TVL was growing in July and August. Individual assets struggled and just this week, a new protocol was hacked for $16M before it was even released.

In the meantime, some are wondering if Bitcoin is better positioned for the next few months, as a few headlines over the last few days aptly illustrate:

The argument has two parts. The first is a simple recalibration: because of all the DeFi hype, Bitcoin is “under-owned.” The second piece has to do with the macro environment. The US election volatility and the hunger in those markets for more monetary and fiscal stimulus are seen as prime environments for a Bitcoin bull.

The Latest In…

Regulations

It’s like 2017 never ended! First, the SEC ordered Salt Lending to pay back its $47M ICO. Next, the SEC also won its summary judgment in its case against Kik. See Jake Chervinsky’s Twitter thread for an explanation. Frankly, we wish the SEC thought the way pro-innovation Commissioner Hester Peirce does!

The Latest In…

Institutions

Need more evidence that Bitcoin is finding narrative resonance this year? Bitwise announced that they had doubled the size of their bitcoin fund for institutional clients. Head of Research Matt Hougan had this to say: “With the unprecedented expansion of the [Federal Reserve’s] balance sheet, the radical amounts of fiscal stimulus, and the Fed’s new and significantly more dovish inflation policy, [Bitwise clients] are looking for a hedge. Bitcoin is the most efficient hedge for inflation that exists in today’s market.”

The Latest In…

DeFi

The biggest story in DeFi this week was absoLUTELY the Eminence hack. This deserves an entire newsletter of its own, but long story short, when the DeFi degens figured out that Yearn Finance creator Andre Cronje was working on something new, they poured $16M into the unaudited contracts. Unfortunately, there was an exploit and a hacker drained it all. By the way, this all happened over a few hours while Andre slept.

The Latest In…

Altcoins

Privacy coins got a big boost when Gemini announced support for shielded withdrawals of Zcash. This technique allows users to obscure their identity and transaction size. This is especially significant given Gemini’s focus on being regulatory compliant. Also, the massively anticipated Filecoin is finally coming to mainnet in October!

The Week’s Most Interesting Data Story

Bitcoin’s Longest Streak Above $10,000

Over the weekend, Bitcoin hit an important milestone. Data collected by Messari shows BTC’s longest streak above $10,000 - beating out the previous record period from December 1, 2017, to January 31, 2018, which of course saw BTC’s all-time-high. This psychological milestone is hugely reinforcing for long-term holders. The longer BTC’s price stays above $10K, the more people there are hungrily waiting to buy it on discount if it ever dips below, setting a new, self-reinforcing price floor.

Hot Topics

What the Community is Discussing

The idea of using tokens to drive deeper community alignment for artists has been a part of crypto for years, but now one artist is actually putting it into practice.

We argue about inflation and deflation a lot. “Price of Tomorrow” author Jeff Booth makes a fascinating argument that a currency that lets the natural course of deflation take place is essential.

The EMN hack was an important inflection point for the DeFi space. Here’s a description of what happened, plus one thoughtful critique about how it might have been handled differently.

Our Take

@AntoniNexo This Week

  • We caught up with Antoni after the Trump-Biden face-off to get his opinion on what their squabble means for markets: “Volatility,” he said. “And there’s plenty more where that came from, so better lock in or hodl those assets and no weak hands!"
  • Are crypto lenders’ interests high or is it that traditional lenders’ interest rates are low? Antoni had a chat with Cointelegraph’s Michael Kapilkov about it.
  • He also made be[in]crypto’s headlines with his comment on Bloomberg about baby boomers coming to crypto.
  • And, Nexo teamed up with Litecoin — one of crypto’s “heritage brands,” as Antoni says.

What to Watch for Next Week:

  • Will Bitcoin continue to grab more of the crypto conversation back from DeFi?
  • What lessons will be learned from the $EMN hack?
  • Will election jitters and stimulus withdrawal increase traditional market volatility?