Rajarshi Mitra
Independent Analyst
- Post halving, Bitcoin has disappointed the community with muted price action and declined market share.
- A Forbes report suggests that the recent boom in the DeFi space has saved Bitcoin from falling any further.
Following the Bitcoin halving event in May, the leading cryptocurrency’s price, market share and volatility have declined drastically. According to a recent Forbes report, a few analysts have suggested that Bitcoin’s price would have fallen much lower without the decentralized finance (DeFi) explosion in the last three months.
The excitement around DeFi makes new protocol tokens susceptible to boom and bust cycles. The most recent boom cycle is around liquidity mining, the report noted. Liquidity mining is a type of incentive program set up by new DeFi protocols intended to attract users or liquidity. Typically, these programs distribute governance tokens to liquidity providers, aka yield farmers.
On the surface level, liquidity mining may have little correlation to Bitcoin's price movements. However, there is a deeper connection. To receive governance tokens as compensation, yield farmers must participate in the network as either borrowers or lenders. This requires a deposit into a pool that borrowers can withdraw from, allowing yield farmers to earn above-market interest rates on their holdings in addition to the capital gains from COMP token appreciation.
The largest amount of value locked in DeFi comes from Ethereum ($715 million), followed by Bitcoin ($141 million). The report also noted that wrapped BTC (WBTC) is currently one of the hottest tokens on Ethereum due to a massive rush by yield farmers to buy the coin to participate in the Compound network and earn COMP governance tokens.
At the moment, the combined locked value of BTC and WBTC within DeFi amounts to $241 million worth Bitcoin, decreasing trading supply on the open market and buoying Bitcoin’s price. Furthermore, the impressive performance in the DeFi space over the last three months has
been aided by the “altseason.” The majority of altcoins trade on BTC pairs, meaning any new speculators entering the space should acquire Bitcoin before trading.
BTC/USD daily chart
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BTC/USD bears regained control in the early hours of Wednesday, as the price fell from $9,255.30 to $9,254.40. The price consolidates in the flag formation and is sandwiched between the SMA 20 and SMA 50 curves.
The price has strong resistance at $9,411.60, $9,431.60 and $9,687.75. On the other hand, the bears will need to conquer support at $9,203.50 (SMA 20), $9,135.45 and $9,019.40 to continue downward momentum.
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