Bitcoin and Ether on the moon: Is the DeFi season coming to an end?

Bitcoin’s price successfully broke the $12,000 barrier after the announcement that PayPal will venture into digital assets, and the month of October is offering the excitement that September failed to provide. With continued bullish signals for Bitcoin (BTC) from on-chain and market data, experts believe we could be on the verge of a similar bull run in 2017.

The price of Ether (ETH) has also been rising, although confidence in decentralised finance is beginning to waver as growth and hype in the industry slows. DeFi contributed significantly to the popularity of cryptocurrency in 2020, but other digital assets now look set to begin new phases of prosperity and could reach considerable heights by the end of the year.

What will happen to Bitcoin?

According to a recent report by Finder, an online comparison resource involving 30 industry experts, Bitcoin’s price is likely to reach $14,283 by the end of the year. And according to Finder’s crypto industry editor, Andrew Munro, Bitcoin’s reputation as a reliable value reserve is the main reason for the generally bullish outlook. Munro explained to Cointelegraph:

„Many speakers pointed out that BTC is increasingly finding its place in traditional portfolios and is being bought by both institutional and retail investors as a hedge against inflation. Considering the unprecedented quantitative easing measures implemented by central banks around the world, some participants assumed that BTC will become a widely adopted ‚value reserve‘ asset“.

Other experts cited several reasons for a rise in Bitcoin’s price, including an increasingly clear regulatory framework in the digital asset market and the many problems associated with fiat currencies, such as inflation and negative rates.

Although the average report predicted a price of $14,283 for Bitcoin by the end of the year, other forecasts point to much higher targets, especially considering the famous stock-to-flow model created by the anonymous analyst PlanB.

Will Ethereum be able to keep up?

While Bitcoin is starting to show signs of strength on the rest of the cryptocurrencies, with increasing trading and market cap dominance, industry players are also showing a positive outlook on Ether, with an average of $513 among speakers, a 40% growth by the end of the year. However, in the long term, experts express doubts about the sustainability of Ether. Munro commented:

„The most commonly cited factor for the bullish short-term forecast on Ethereum was the long-awaited launch of Ethereum 2.0 before the end of the year, and the impact of the staking on the supply side“.

During 2020, Ethereum saw its popularity increase thanks to the explosion of DeFi, but some people are sceptical about the sustainability and long-term perspective of decentralised finance. Although many are hoping for the launch of Ethereum 2.0, it could still take years to complete the process. Jonathan Hobbs, author of The Crypto Portfolio and former fund manager of digital assets, explained to Cointelegraph that it is one of the reasons for the positive returns at Bitcoin:

„A few months ago, DeFi strategies became too speculative, as is often the case in this industry. We can see how some of these flows are now returning to Bitcoin, with BTC’s dominance headed upwards as a result of DeFi’s sell-off“.

DeFi loses momentum

As the gains of the alt-season in DeFi pour back into Bitcoin Era, the long-term sustainability of decentralised finance may be called into question. In fact, a survey conducted by CryptoCompare surveyed 26 leading exchange operators on the future of decentralised exchanges, and only 7.7% believe that DEX is likely to outperform centralised exchanges within two years.

It is clear that activity in DEX is slowing down, but some believe this is actually positive in the long term. Lanre Jonathan Ige, researcher at Amun AG (an exchange-traded product issuer on cryptocurrency in Europe), told Cointelegraph:

„The reduction in immediate hype for DeFi will be disappointing for the trader in the short term, but is probably positive overall for the industry. The bubble we observed this summer was not sustainable, but it has shown how various aspects of DeFi (lending, trading, DAO) are actually useful for particular use cases“.

Although sustainability seems to be the main obstacle to the long-term success of decentralised finance, both in terms of returns in DeFi and the technical aspects of Ethereum, others cited a shady crypto sector, complicated interfaces and a general lack of popularity as deterrents for the continued growth of DeFi. Munro said:

„73 per cent of participants said that ’scams, exaggerated hype and market manipulation‘ were a key obstacle to DeFi’s growth, and some compared DeFi to the ICO boom in 2017“.

However, many remain confident about DeFi. In fact, most experts in Finder’s crypto report said that DeFi applications are likely to continue to grow steadily over the next 12 months in terms of blocked value and number of users. Ilya Abugov, lead analyst at DappRadar, also believes this is true, explaining to Cointelegraph:

„At the moment we see less hype than the media in DeFi. During the summer there has been a great accumulation, so now we need a return to reality“.

Institutional interest continues to grow

DeFi may have been the catalyst for this summer’s crypto activity, but in the future institutional interest could become the driving force for Bitcoin, according to Lanre, especially as big companies like MicroStrategy, Stone Ridge and Square are getting involved.

The exchange operators interviewed in the CryptoCompare survey also believe that this will be the case. 92.3% of respondents said there will be an increase in institutional investment in digital assets over the next two years. According to Hobbs, the scarcity and deflationary nature of Bitcoin are some of the factors that explain why institutions are taking an interest in investing in digital assets:

„Ninety per cent of all Bitcoins have already been undermined. Ninety per cent of all dollars have not yet been printed. I think this fiction is starting to catch on among institutional players.“

Meanwhile, some institutions are still betting on the DeFi sector. During a recent webinar, Pantera Capital revealed that DeFi will be at the centre of the upcoming bull run. However, although many still believe in DeFi, the majority seems convinced that the hype cycle is over and that the sector is set to grow more slowly, driven mainly by Ethereum’s scalability capabilities.

Despite the generally positive outlook, many are still concerned about recent regulatory news, such as the US legal action against BitMEX and the UK Financial Conduct Authority’s ban on crypto currency derivatives for retail investors. Will other regulatory restrictions follow? Or will everything go smoothly for Bitcoin and crypto from now on?