Sunday, October 2

Time to rotate! Data Suggests Operators Are Switching From NFT To DeFi


An important part of preserving investment earnings is knowing when an asset or sector shows signs of depletion and when a sector rotation is taking place.

This is especially important in fast-moving crypto markets, which can change direction in the blink of an eye and turn crypto millionaires depressed.

Most investors are aware that the non-fungible token (NFT) sector has been on fire since July, and like CryptoPunks, Mutant Ape Yacht Club, and EtherRock’s NFTs for pets all scored six- and seven-figure sums, while the main NFT market, OpenSea overcome $ 4 billion in total sales. While the frenzy has been exciting, many new projects have been launched across a variety of blockchain networks, and the recent decline in transaction volumes could be a sign that investors are looking to move to different pastures.

In the first quarter of 2021, decentralized finance protocols (DeFi) and their related tokens were the focal points for investors, but this sector cooled off in March when the NFT market experienced its first bull market. Now it seems that the tide has started to turn, and the gains made from NFT trading could be returning to the altcoin and DeFi markets.

Here are five signs that a capital shift from NFTs to the DeFi sector could be underway.

Small and Large Cap DeFi Token Rally

DeFi Perp is an index token on the FTX cryptocurrency exchange comprising a basket of 25 of the major DeFi-related cryptocurrencies, including Maker (MKR), Polkadot’s DOT, Solana (SOL), Curve DAO Token (CRV), Uniswap ( UNI) and SushiSwap (SUSHI).

Data of TradingView shows that the price of DeFi Perp has been on the rise since bottoming at $ 5,331 on July 20, and has since risen 138% to a daily high of $ 12,771 on September 2.

DEFIPERP 1-day chart. Source: TradingView

The DeFi Perp price surge back to the $ 12,500 support and resistance level, which is shown as an important level during the rally between February and May in 2021, is a sign that funds are starting to flow back to the DeFi ecosystem as well as the daily trading volumes and minimum prices of NFTs are in decline.

NFT prices are cooling down

Since rapidly rising NFT prices have been the main feature that has caught the public’s attention, it is also a red flag and a good metric to judge the overall health of the sector. As shown in the graph below, which tracks the daily average minimum price of NFTs sold in the market, the average minimum price peaked at 1.02 Ether (ETH) on August 29 and has since fallen back to 0.5 ETH.

NFT Minimum Price Tracker. Source: Dune Analytics

The fact that NFTs are selling for less or new high-volume projects are selling for lower prices could be a sign that the market may be saturated and that momentum is beginning to wane.

Increase in active users and transactions on DeFi platforms

Another sign that the DeFi ecosystem continues to grow is the increasing number of DeFi users over time, as shown below in the Dune Analytics data.

Total DeFi users over time. Source: Dune Analytics

New users interacting with the protocols are likely to be drawn in by the constant returns and hassle-free token play, and Cointelegraph has reported that traditional finance investors are also deeply interested in what DeFi has to offer. .

While this metric tracks the number of unique wallet addresses that interact with DeFi protocols and some users may have multiple addresses, the situation has gotten more complicated in recent times. The long-term nature of earning a return on DeFi through participation, provision of liquidity, or locking of tokens in protocols has arguably led to a decrease in users switching between multiple wallets and paying high gas fees. to constantly move assets.

The continued entry of new users into the DeFi space could indicate that some who have made profits on NFT are now looking to lock in profits and make a return, while newcomers to the market are drawn to its lower risk opportunities.

$ 4,000 ETH signals a rotation at stake

Another development that could indicate a rotation of the sector towards DeFi is the increase in the price of Ether.

ETH / USDT 4-hour chart. Source: TradingView

Cointelegraph Markets Pro data and TradingView shows that the price of Ether has rebounded 125% since hitting a low of $ 1,706 on July 20, with its most recent rise of 23% pushing its price from $ 3,134 on August 30 to a high of $ 4,029 on September 3.

With most of the major DeFi protocols located on Ethereum, the top altcoin is one of the main assets in the DeFi ecosystem and is widely used for betting and buying other tokens.

Related: Does Ethereum Rally Indicate Next Bull Market Phase For Bitcoin Above $ 50K?

DeFi TVL hits a new all-time high

A final metric that indicates a sector rotation to DeFi is taking place is the Total Value Blocked (TVL) across all DeFi protocols. On September 2, the figure reached a new record of $ 171.5 billion.

Total value locked in DeFi. Source: Defi Llama

Previous increases in TVL were largely due to increases in the prices of Bitcoin and Ether, but the current momentum comes as both tokens are trading well below their 2021 highs, indicating that the rise in TVL has more to do with the increasing value of DeFi tokens and the increased use of stablecoins.

While the NFT boom may not be over, multiple data points suggest that the bullish momentum has reached a point of exhaustion, and the current surge in altcoin and DeFi prices is a sign that a rotation is in. its early stages.

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The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and business move involves risk, you should do your own research when making a decision.