DeFi Collapse Will Influence a Historic Ethereum Rally
The intense increase in the popularity of DeFi created a notable buzz for Ethereum in the cryptocurrency space within the previous few days. The popularity of DeFi in recent times is majorly influenced by an emerging trend known as ‘yield farming.’
Yield farming allows the leveraging of different protocols to receive huge payouts (up to 200 percent APR). Due to this trend, several tokens related to DeFi have seen huge uptrends, even as COMP rallied by over 100% percent and many other tokens recorded parabolic rallies.
Currently, according to analysts, this DeFi bull market could end soon, possibly influencing a major Ethereum rally. One of them said this could initiate a new Ethereum bull run capable of breaking its multi-year downcycle and drive its immediate huge uptrend.
There is still a close correlation between the price action of Ethereum and Bitcoin as well as the entire cryptocurrency market. With more users and utility, Ethereum has maintained its fundamental strength. At press time, the price of ETH is $242, representing more than 2 percent increase. This slight climb upside move occurred as BTC tried to surge over $9.5k.
Some investors are concerned about the reason ETH’s performance is yet to be impacted by the huge growth recorded in the DeFi ecosystem. An analyst noted on Twitter that ETH could record some upwards momentum once investors begin cycling profits out of DeFi tokens. However, another renowned analyst noted that this could bring about a historic bull run.
“Ethereum is about to break out of its freshman bear market, like Bitcoin did 9 years ago. Positive market sentiment is fertile soil for the future promise narratives that story assets like ETH thrive in. The recent DeFi bull market will implode shortly and feed into ETH.”
Market participants can understand the influence of the decline in DeFi on the performance of ETH by looking at an inverse correlation between the price of DeFi tokens and Ethereum.