The crypto market is currently under the effects of a panic-fueled bear market. Amidst the volatility, PWC’s recent Annual Global Crypto Hedge Fund Report reveals positive survey-based insights into the global crypto hedge funds landscape. The report reveals the crypto hedge funds asset under management reached almost $3.8 billion in 2020, a significant increase from the $2 billion in 2019. The growth in the total value shows an increased interest for DeFi from investors.
While the report dived into both qualitative and quantitative aspects of the crypto hedge funds management, the charts reflected an aligned growth in terms of returns and funds managed with stable management and performance fees. Factoring in various aspects including liquidity, trading, governance, performance fee, etc., the report reflects on the performance of crypto hedge funds in comparison to 2019.
Growing Interest in DeFi
Decentralized Finance witnessed a similar parabolic run with the rest of the crypto assets in early 2021 with a value of over $65 billion locked in Defi, according to DeFi Pulse.
Defi protocols aim to factor in peer-to-peer financial services, eliminating the involvement of traditional banks and other intermediaries for financial services like trading, loans, interest, etc. It is deniable that defi massively boomed between April 2020 and April 2021 with a 90-fold growth in the trading volume on defi platforms, according to the PWC report. The report also revealed that 31% of crypto hedge funds use decentralized exchanges with Uniswap taking the lead of being used most(16%) by the hedge funds.
As the growing defi protocols tackle the errors that come with third-party involvement, leading crypto advocates like Mike Novogratz, a high-profile Bitcoin investor, in a Binance podcast recently expressed that defi can cause serious trouble for banks. Moreover, a famous Shark Tank personality, Kevin O’Leary, on a podcast with Anthony Pompliano, recently revealed his bullish take on the potential of Defi, confirming that he is a “large shareholder” in a company called Defi Ventures. Further adding his plans of using Defi to lend out asset on exchanges for yield, he said:
“Imagine if I could have over these years had a 5% yield on my gold, that would have been incredible. Well, I can on my crypto so that’s really what I’m doing in DeFi and I think I’ve got the best team in North America.”
Stability in Defi Market Shows Potential for Mass Adoption
It’s incredible to find that Defi acted with resilience as the market was served with high price volatility and increased gas prices. The process indicates the mechanisms like liquidation to be working as intended, focusing on the stablecoins especially DAI maintaining its peg as the exchanges are flooded with massive transfer volume.
According to Glassnode Insights, stablecoins stood up to their purpose in a market scenario of huge price volatility, with DAI adjusting its circulating supply in response to collateral requirements and retaining protocol stability.
The phenomenon showcases a very healthy behavior that otherwise could have significantly affected the lending activity. Since meeting collateral becomes immensely difficult during increased price volatility, stablecoins losing their pegs becomes risky for borrowers during a market crash, further affecting interest rates. Fortunately, stablecoins showed resilience, resulting in stable lending markets during a major market crash.
Moreover, crypto hedge funds have also had their toes stably dipped in the staking, lending, and borrowing markets, maintaining their involvement quite stable throughout 2020 compared to 2019, according to the PWC report.
Fund Managers’ Positive Outlook on Bitcoin Prediction
Before the crisis in the crypto market bent into its full glory, Bitcoin had successfully breached the mark of $60k with predictions of only going higher. At the same time, as mentioned in the PWC report, BTC predictions from the fund managers aligned with the rallying market. About 65% of the respondents predicted to be between $50,000 to $100,000 by 31 December 2021 with another 21% predicting the prices to be between $100,000 and $150,000.
As the crypto market recovers from the massive crash, BTC dominance hangs at 42.4% with ETH at 18.7%.
Ethereum to Become the Market Dominant
Ranking as the second-largest cryptocurrency by market capitalization, Ethereum has walked past the days of being called an altcoin. Moreover, Ethereum’s public blockchain shares grounds with the majority of the defi protocols including Uniswap, Compound, Aave, etc.
Furthermore, earlier this week a leaked Goldman Sachs report predicted Ethereum for a “high chance” of overtaking bitcoin as a dominant store of value, further calling it the Amazon of information.
“Given the importance of real uses in determining the store of value, ether has a high chance of overtaking bitcoin as a dominant store of value,” analysts at Goldman Sachs wrote, according to leaked sections of the report shared on Twitter.
It is undeniable that the popularizing and expanding boundaries of decentralized finance had massively pushed Ethereum to surge over the last year. Moreover, NFTs catching on to promote digital art and collectibles are largely issued on Ethereum. Unlike bitcoin, Ethereum’s ecosystem allows users to deploy smart contracts and offer developers the building blocks to create decentralized protocols, promoting growth and innovation in the crypto space.
Decentralized finance stands on the institution of transforming traditional financial instruments like loans and interests into decentralized blockchain-based protocols. Ethereum has embedded itself as one of the early entrants and a leading player in crypto history. Moreover, Defi has received appreciation from several finance experts and analysts, and the parabolic nature of its growth reflects clearly on the $65 billion locked in Defi.
With paramount new protocols and innovation lying ahead, the crypto space is also looking forward to Ethereum 2.0. Ethereum’s proof of stake protocol will bring high scalability and low gas prices, which advances Defi and further deepen its roots into the ground to someday replacing traditional finance altogether.