The only reason Ethereum hit ~ $ 1,400 during the 2016-2018 bubble was undoubtedly the first coin offerings – better known as ICOs.
During the previous bull market, entrepreneurs tried their hand at startups and raised money by selling tokens they minted from scratch in ICOs. As ICOs often raised money through ETH – one of the most famous, user-friendly and integrated crypto assets – the asset saw a colossal surge in demand.
As Avi Felman, trader at BlockTower Capital crypto fund, recently stated:
“The all-time high price of ETH is probably a red herring and was driven by a very specific dynamic (buying ETH to place in ICOs, no selling pressure as ICO treasuries didn’t think about it). “
This feeling has been borne out by other commentators such as dealer “Whale Panda”.
ICOs are now broke, and most altcoins are down more than 80 percent from their all-time highs. Ethereum has thus lost its greatest historical price catalyst.
However, that hasn’t stopped a fund manager from arguing that decentralized funding (DeFi) will be the next trigger for Ethereum to start a parabolic rally.
DeFi will send Ethereum parabolically
During the last cycle, Ethereum rebounded so far and quickly that it surpassed a market cap of $ 100 billion and threatened Bitcoin as the leading cryptocurrency.
The move described above was largely caused by ICOs.
According to Joseph Todaro, managing partner of Blocktown Capital, the decentralized funding will do more to catalyze an upward trend in the price of Ethereum than DeFi:
“In 2017, ICOs helped move ETH beyond a market capitalization of $ 100 billion. In this next cycle, Defi is likely to help bring ETH to a market cap of $ 1 trillion. “
In 2017, ICOs helped move ETH beyond a market capitalization of $ 100 billion
In this next cycle, Defi is likely to help bring ETH to a market cap of $ 1 trillion
– Joseph Todaro (@JosephTodaro_) June 16, 2020
A market capitalization of USD 1 trillion is around 4,000% higher than ETH’s current USD 25 billion and corresponds to around USD 9,000 per coin.
As crazy as that sounds, Todaro isn’t the first to come up with a suggestion like this.
Chris Burniske, partner at Placeholder Capital and former crypto asset analyst at ARK Invest, argued that “you’re not careful” if you believe that “DeFi will have less of an impact on ETH than ICOs”.
He argued that collecting ICO donations was only one of the characteristics of Ethereum as a financial service, although DeFi will “make Ethereum’s ability to provide all financial services flexible”.
Burniske didn’t include a price prediction on his tweets on DeFi, but previously noted that Ethereum is on track to dwarf $ 7,500 in the coming cycle if Bitcoin surpasses $ 50,000 – something he thinks is quite likely.
“To the mainstream $ ETH will be the new kid on the block – expect a frenzy that comes with that realization, ”said Burniske.
Andrew Keys, once ConsenSys, has also addressed this. He wrote earlier this year that Ethereum “has a market opportunity valued at well over $ 80 trillion” because the blockchain basically has “infinite use cases”.
“We will be able to trustworthy and digitally represent fiat, gold, software licenses, equity, debt, derivatives, loyalty points, reputation ratings and much more that we cannot even imagine.”
A plateau trend … at least for now
However, Ethereum DeFi may encounter mounting pains.
Just yesterday, June 17th, it was feared that the decentralized liquidity network Bancor would be hacked. San Francisco-based venture capital fund Hex Capital took the news on Twitter when they wrote:
“User funds are used up […] Looks like they are trying to withdraw user funds before anyone else can, but it seems they are / were too late in many cases. “
This would have been the application’s most recent hack as Bancor lost $ 13.5 million worth of cryptocurrency (mostly Ethereum) in 2018 due to compromised smart contracts.
Decentralized financial information aggregator DeFiPrime has since announced that the Bancor team told them that all user funds are safe and that a white hat attack has kept the funds safe. However, this still shows how young this part of crypto is.
Second, latency issues.
As previously reported by CryptoSlate, Kyle Samani, Managing Partner of Multicoin Capital, stated in a blog post that DeFi is faced with a number of “invisible asymptotes”.
“You just can’t build global trading systems for many users in prisoner-of-war chains. It just doesn’t work. High latency -> all kinds of second order negative effects. I think we’re near a DeFi plateau for the time being – as measured by ETH (not in USD) – until the core latency issues are resolved. “
Samani’s main problem seems to be Ethereum’s block time, which forbids modern financial processes to migrate to the blockchain.
Samani also identified a lack of fiat on ramps, a lack of trading functions in decentralized applications, and a lack of skills to leverage in the DeFi space as problems for this emerging part of the Ethereum economy.
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