Christmas in Style for Bitcoin
Unlike the last two years, the week leading up to Christmas 2020 sees new all-time highs for Bitcoin as withdrawals from centralized exchanges continue.
The month of December is summing up the entire year of 2020 which is now in its final stages. A start to the year which saw the entire crypto sector get off to a brilliant start and, in mid-February, record a return close to the highs of 2019, with Bitcoin leading the recovery by rising above $10,000 for the first time in several months.
The crisis that erupted between the end of February and mid-March, with the first cases of Covid19 in Europe, forcing the closure of borders and the blocking of trade not only between neighbouring countries but also within the same countries, also hit the digital currencies, with prices plummeting by more than 60%. A few months later, we can now say that what happened in March, in contrast to traditional financial markets, has affected the cryptocurrency market due to a lack of liquidity. Many traders forced to close profitable positions to cover losses on other assets were forced to quickly close profitable positions on other markets.
Assets considered to be safe haven such as gold and silver suffered double-digit declines in those days, a rare occurrence for these types of financial instruments. Bitcoin & Co. were not spared, raising doubts as to whether digital assets, primarily Bitcoin, were a real investment alternative. The so-called digital gold for the umpteenth time in its history, though brief but very intense, would have had to prove its efficiency not only in the fundamentals, which except for a few phases has never suffered meltdowns, but also to the hard law of the market governed by supply and demand. A demand that, after an initial reaction that triggered prices from 4,000 to 8,000 dollars between mid-March and the end of April, cooled until August, increasing suspicions that interest in cryptocurrencies was diminishing, while instead during those months the financial markets recovered all the decline between February and March with the US stock indices of Dow Jones, S&P500 and Nasdaq returning to absolute historical highs.
At that time, the focus for digital assets had shifted to decentralized finance, which day after day saw both the value of the collateral used and the value of the tokens of listed projects grow, with a rapidity that in terms of characteristics was reminiscent of the ICO period of the second half of 2017. Instead, for Bitcoin and the main cryptocurrencies, it was an accumulation phase which, after timidly bringing the quotations back above the annual highs of February, exploded at the beginning of October with a rise that is still ongoing. Since October, more than two-thirds of Bitcoin's daily closings have been positive, with only two weeks out of twelve in the red.
The Bitcoin price is currently above USD 20,000 for the first time in three years. There are many reasons for this. The main ones have been exposed and anticipated on these pages several times over the past three months, that is since this newsletter was born. This is why from now on there will be no need to comment on what has happened, which is why I will gladly leave the space to other reporters, but to understand in advance and hypothesise the most realistic dynamics that could materialize during 2021. A year that will mark a historic turning point in many respects, which I will be analyzing with you in the coming weeks. It is neither accidental nor a matter of simple betting that professional investors and banking giants are entering the market in increasing numbers, even though until a few months ago they were still making harsh and sometimes derogatory comments. A market that will appreciate more and more, not only in terms of prices but also in terms of size. And as in the past, some companies will emerge and others will be eclipsed.
This year Christmas has a different flavour compared to the previous two. If in 2018 and 2019 we watched the end of the year worried by quotations falling to period lows, this time the situation has reversed.
We deserve to enjoy these days of celebration and holiness in serenity.
That is why I wish you and your families a peaceful and merry Christmas.
DeFi - Decentralized Finance
After last week's volume records on centralized exchanges (CEXs), trades are decreasing but remain strong and above the daily average of the last two months. In contrast, the haemorrhage of bitcoin being withdrawn from CEXs continues. Over the past week, more than 3,100 BTC have been withdrawn from the major exchanges, bringing the number of BTC deposited to just under 1.6 million, or 7.6% of the more than 18.5 million bitcoin mined to date. The lowest percentage in three years. Withdrawals are also affecting Ethereum with over 324 thousand ETH withdrawn in the last week dropping the total deposits to 23% of the total Ethereum circulating (around 111.9 million to date). In percentage terms, the lowest level since May 2019.
Where are both the bitcoin and Ether withdrawn from exchanges flowing to? Looking at the numbers it would appear that investors prefer to hold them in wallets, not in DeFi. Contrary to what happened in November.
In the last two days, the DeFiPulse.com website recalculates the Total Value Locked (TVL) excluding WBTC from the calculation. The value locked on decentralized finance projects now rises above $14 billion, setting a new all-time high. This record is supported by the strengthening of both Bitcoin and Ethereum prices.
Total Value Locked in DeFi (TVL)
Since Friday's last update, the number of ETH locked has risen from 7.2 million to 7.5 million, while the number of tokenized BTCs remains almost unchanged at 124,000.
The total trading volume on decentralized exchanges (DEXs) has risen to over $6 billion, up 55% from last Wednesday's levels.
Uniswap continues to lead the way with over $3.3 billion, equivalent to 55.7% of market share.
0x follows, dipping below the 1 billion mark passed last week, with its market share dropping from 20% to 15%.
SushiSwap recovers with 653.8 million, maintaining about 11% of the market share.
DEXes Volume Last 7 Days
5 hottest DeFi news of the week
Injective Protocol launches the tokenized stock trading
Sky Bridge Capital launches a Bitcoin fund
Hudson Jameson Steps Down from Ethereum Core Developers
Microstrategy continues to buy Bitcoin
Grayscale reaches 13 billion dollars in BTC and other cryptocurrencies
Technical Analysis
Bitcoin (BTC)
The technical structure remains unchanged since the last update on Friday. Despite the caution, prices remain latched onto the $24,000 level. Despite the failure of two attempts to breach this level, the trend remains firmly set to the upside. The indications previously written remain valid, namely: "For the coming days of the week, it is important for prices to find a consolidation point above 20.000 dollars (1). Only the downward break of this technical and psychological threshold would trigger an initial alarm for the medium-term trend".
BTC Chart
Options traders are beginning to reposition themselves and are choosing to start hedging risks both to the upside and to the downside with equal strength. Upwards, the $24,400 area is identified as the resistance level beyond which a new extension could be triggered that would lead prices to test the $25,000 level. Downwards, the 21,800 area has been identified as the first support level which, in the event of a break, would lead prices to test the support of 21,000 USD, which corresponds to the 50% Fibonacci retracement, a new level updated after the recent new highs.
BTC Options
Ethereum (ETH)
The cyclical retracement phase hypothesized and described in the previous report seems to have begun. In contrast to Bitcoin, which managed to set a new record on Sunday, December 20th, the prices of Ethereum have stopped a handful of points below last week's previous highs at just under $680. For the past few hours, prices have been oscillating just a step above the bullish dynamic trendline (1 - 580 USD) that links the rising lows since early November. A plunge below this dynamic support opens up room to test the next support of 530 USD which corresponds to 25% of the Fibonacci retracement calculated on the lows and highs of the last nine months. There continues to be ample room for manoeuvre for prices in the event of declines.
ETH Chart
The strength of the Call option positions is increasing, indicating that traders are more inclined to expect a continuation of the weakness in the coming days. Downwards, on the other hand, the protection structures are equally spread between 580 USD (level which coincides with the dynamic support indicated above) and 480 USD (level which coincides with the previous annual maximum established at the beginning of September, which has now become technical support).
ETH Options
Aave: "The future of DeFi will play on the synergies with CeFi"
An exclusive interview with Stani Kulechov
Aave has been one of the major players in DeFi in 2020 so it was impossible not to interview their CEO and founder Stani Kulechov to sum up the events of this year in the decentralized space, also to understand what 2021 will look like.
How is 2020 going?
2020 has been a crazy year for DeFi, and the total space has grown from just over $600M to over $15B in total value locked in assets at the time of writing this. We launched the Aave Protocol back in January, and already we surpassed $2B market size. It has been very exciting to see the space develop so much in just 1 year. Amazing projects have popped up on the map, and now we are moving towards mainstream adoption.
What are the plans for your 2021?
DeFi’s growth in 2021 will dwarf 2020. We just launched Aave V2, which introduces some cool upgrades to make the DeFi experience more seamless. Aave Limited, the branch of the company responsible for integrations, received an Electronic Money Authorization from the UK Financial Conduct Authority, meaning that Aave Limited can issue payment accounts and facilitate currency conversions. In 2021 we plan to keep innovating, and also to bridge the gap between the DeFi and FinTech spaces by making it easier than ever for new users to purchase crypto and onboard to DeFi.
Additionally, Aave governance is live so the community now has the power to create and vote on proposals. This is a huge step towards decentralisation, and now the development of the protocol is in the hands of the community, with the role of the Aave team as “builders”.
- Can you tell us more about your project with Aavegotchi?
Aavegotchi and Aave are separate companies and teams, but we are advising them and they were initially funded by an Aave ecosystem grant. Aavegotchis are cute ghost NFT collectibles staked with Aave’s aTokens which accrue interest in real-time, so the value of your Aavegotchi is always increasing. In order to summon an Aavegotchi you have to stake a certain amount of collateral. The amount depends on the traits of the particular Aavegotchi you’re trying to summon. Aavegotchi is a great way to introduce people to aTokens and a very interesting way to utilise them. Gamifying DeFi opens it up to a much larger audience outside of “unsexy” finance, and it's a great entry point for adoption that makes it fun, simple, and accessible to a more mainstream audience. I think this has tremendous potential in the future and is something that we will see grow in 2021.
How is it going with your plan for the tokenization of Tesla?
Haha this was just a tweet-- no official plans here, but if Elon Musk is reading this hit me up.
With the increasing number of lending and borrowing services, how will Aave try to differentiate its project?
Aave has been a pioneer in the DeFi ecosystem since 2017, so there are many factors that help maintain its cutting edge. The Aave Protocol only launched back in January, and it quickly grew to $1B TVL (record growth for the DeFi space) with no security incidents.
One unique tool that was introduced with Aave V2 is yield and collateral swap which lets users swap any of their deposited assets. This tool lets you swap to get the best yields on the market at any time, making it easier than ever to get the highest interest rates. It is also a lifesaver when it comes to avoiding getting a borrowing position liquidated.
For example, if you’re using ETH as collateral to take out a loan and the price of ETH starts to fall, you can simply swap it to another asset and avoid getting liquidated. This helps borrowers maintain the health of their loan positions.
Aave v1 brought Flash Loans to market as the first uncollateralized loan option in DeFi. Now Aave v2 introduces another tool called Credit Delegation where a depositor can delegate their credit line to someone else who can then borrow against it without needing to put up any collateral of their own.
All of the terms and conditions of the loan are sorted out in a legal agreement. Credit Delegation is one way to bring DeFi, CeFi, and TradFi together. For example, a depositor could be a DeFi fund looking for more credit exposure, and a borrower could be a business, institution, government, NGO, etc. This makes DeFi a source of liquidity for the rest of finance and is a huge step forward in our vision to bridge the gap between DeFi and FinTech.
What's your vision for the future of DeFi?
The future of DeFi will play on the synergies with CeFi and traditional finance. My long-term vision is to reach mainstream adoption, and this is becoming more of a reality now with the adoption of L2 and sidechains by protocols for scalability. In the past few years, UI/UX has already improved greatly making it easier than ever for new users to onboard, and we are getting closer to bringing DeFi into the mainstream.