Decentralized finance has revolutionized the concept of money around the world.
Before the appearance of decentralized finance, DeFi in English, the possibilities of generating dividends with cryptocurrencies were limited to buying, selling, and some other options through derivatives. However, this range of possibilities expanded significantly in 2018 with the launch of Uniswap, a decentralized platform for swapping or exchanging currencies, generating dividends in new ways such as providing liquidity, staking, among others.
Bitcoin Continues to Mark the Movements
Although these financial tools have revolutionized the market, they have also introduced some scalability complications, congestion in the Ethereum network (and other networks), increased gas costs, etc. In addition, Bitcoin movements continue to dominate the current market situation, as it has been historically. In addition, we can see this trend in DeFi, as experts point out.
Manu Ferrari, co-founder of Money On Chain, told the newsroom that, “the market is still bullish. When I say ‘the market’, I am mainly referring to the Bitcoin market, as the trend in Bitcoin drags everything else down, including everything that is built on DeFi. It is possible that if the current growth cycle is prolonged, we will have several ATHs, less pronounced in this Bitcoin halving cycle than in the previous ones, and also more moderate crashes.”
Bear Market on the Horizon
Bitcoin is a bullish asset in the long term, but this does not imply that the price rises on all time scales without pause. Moreover, if we are based on historical trends after impulsive movements to the upside, such as the first time it exceeded 20 thousand dollars in December 2017; there have been strong downward trends, such as the 2018 bear market that lasted several months until the 2017 all-time high was broken again at the end of 2020.
“In DeFi I see everything, a lot of innovation but also extremely fragile projects, which I do not see as sustainable in the long term. A bull market that is less ‘violent’ than previous cycles has a direct impact on projects with non-robust financial models, or that use “Crypto assets” as a base with very little experience. These types of projects can continue to endure over time in a scenario without a pronounced and/or sustained decline. But crashes will inevitably come in the future, if not in 2022, it will be in 2023, or later. And in those scenarios, only very robust DeFi projects are going to endure”, added Manu Ferrari.
In short, we do not know when such a strong downward trend will be evident again, but there are historical indications that point to seeing such a period again. Recently, Bitcoin has returned to mark prices in the upper part of its current range pending the consolidation and formation of floors. Since the dominance has not eased in recent weeks, the following Bitcoin moves may cause high volatility in some altcoins.
Future challenges associated with cryptocurrencies
There are serious concerns about the way the international financial system, the central banks, and the public and private banks of the countries, can assume the imminent change in the traditional structure of the exchange of value for money that does not have traditional support, and in an economic system that is increasingly open to alternative mechanisms of value representation.
In this sense, the Central Bank Digital Currencies (CBDC) appears as an institutional response to the advance of Bitcoin and cryptocurrencies in global markets. Likewise, there is the growing use of stablecoins or stable cryptocurrencies, whose 1:1 relationship with the US dollar marks a notable difference with the rest of the Cryptoactives, as it is not volatile in price and has the support of all the technological scaffolding of the Blockchain, Digital Wallets, Exchanges, etc.
We are in a transcendental historical moment for social and production relations with intensive use of technology in their means of payment, which is why the need for a new theoretical construct is essential for the understanding and application of this new economic, political, social, and institutional that demands a different and multidisciplinary approach for its correct adoption and development.
By Audy Castaneda
