Data: Ethereum DeFi is heavily undervalued, even at $13b aggregate market cap 🚨 This article is 4 years old...
Data: Ethereum DeFi is heavily undervalued, even at $13b aggregate market cap
2 min read
Updated: Oct. 3, 2020 at 9:32 am UTC
Even after a 20-30 percent correction from the recent highs, Ethereum decentralized finance coins are up hundreds of percent in 2020 alone. To illustrate this best, Aave’s LEND token has gained in excess of 5,000 percent since the start of the year.
The extreme strength of these coins has led some to think that these markets are overvalued.
Ari Paul, CIO and co-founder of BlockTower Capital, recently stated on DeFi as a whole market:
“A basic trading rule (that I learned the hard way several times) is that when parabolic (true parabolic) advances break, you don’t look to buy until most of the parabolic move is reversed. In BTC tops, that’s meant waiting for 75%+ dips. In alts, 85%+. BTC had a clear parabola in 2017. A less clear one in 2019. Defi just had one burst.”
Others, though, have taken a different view.
One analysis of market data suggests that at the moment, DeFi coins are actually undervalued as their underlying platforms see drastically increased usage despite the consolidation seen in the market.
Is DeFi overvalued? Data shows it might actually be undervalued
According to an analysis shared by Jeff Dorman, a Wall Street investor turned CIO of Arca, compared to where DeFi coins were last month, they’re extremely undervalued.
The analysis shows that while most DeFi coins like Maker’s MKR, Aave’s LEND, Curve’s CRV, and others are down 20-50 percent in the past month, the revenue these protocols are generating is up dozens to hundreds of percent.
Dorman sees this divergence as a potential opportunity for long-term value investors in the crypto space:
“Not all tokens are created equal. Some accrue no economic value regardless of earnings, while others directly accrue value when earnings increase. This is a perfect setup for value investors — the sector is collectively dumping, but there will be long-term winners and losers.”
Parabolic growth may resume… later
While DeFi coins may be relatively undervalued to where they were last month, that doesn’t mean that their parabolic ascent will continue right now.
Andrew Kang, the founder of DeFi-focused crypto fund Mechanism Capital, recently noted that there’s a good likelihood this segment of the market enters a period of consolidation.
“So what happens over this next period? Probably some consolidation and range trading (Index +/- 30%) for a few weeks as overexposed players continue to rebalance and some new funds flow in buying these re-rated assets.”
Where are we in the DeFi market?
We're definitely not at the 2018 stage of the market where we see a long bear market
Probably somewhere between First Sell Off and Bear Trap
Some analysis below. https://t.co/XHnvoLYS2D
— Andrew Kang (@Rewkang) September 23, 2020
Kang did note, though, that the next phase of growth is likely nearing.
He cited the fact that “the innovation and pace of development continues forward at a blistering pace” while there are large swaths of capital entering the space through new funds or through new demographics dabbling in Ethereum and DeFi.
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Ethereum is a decentralized, open-source blockchain platform that enables the creation of smart contracts and decentralized applications (DApps).
Maker
$1,432.25
Maker is a decentralized autonomous organization on the Ethereum blockchain seeking to minimize the price volatility of its own stable token — the Dai — against the IMF’s international currency basket SDR.
Curve DAO Token
$0.29097
Curve DAO (Decentralized Autonomous Organization) is a decentralized platform built on the Ethereum blockchain that aims to provide a stable and efficient market for trading stablecoins.
BlockTower Capital
BlockTower is a leading cryptoasset investment firm, applying professional trading, investing and portfolio management to an emerging digital asset class..
Ari Paul is a well-recognized name in the world of finance and cryptocurrency as the co-founder and Chief Investment Officer (CIO) of BlockTower Capital.