Cryptocurrencies

Still DeFiant

At the beginning of the month I wrote an article titled “DeFy the market” – warning about the excess hype associated with DeFi in general.

Normally after writing such an article, I regard its topic as having been “dealt with”, unless subsequent fundamental changes occur.

But sometimes I feel as if I haven’t driven the point home enough. I feel that way because things not only carry on in the dangerous direction which I warned about, but actually become even worse.

The runaway train “DeFi” has not only picked up speed, but I suspect that it’s branched off onto a section of track that’s headed for a cliff – and it’s not alone.

It’s not alone?

I mentioned a few coins by name in “Defy the market”; coins like LINK, LEND and COMP. It genuinely disturbs me to see how high and fast some of these coins have climbed the market cap ladder, LINK being the best example of that.

I reiterate: relative to the entire global economy, such coins are not overvalued. But relative to other cryptocurrencies – noting the lack of maturity of the crypto market as a whole – these coins are overvalued.

History teaches us that things seldom end well for overvalued assets which have climbed the market cap ladder far faster than their peers.

So if I find LINK to be so disturbing, imagine how I feel looking at the likes of YFI, YFII or DOT!

My fellow cryptonauts: coins can not suddenly just grab themselves a market cap of a billion dollars!
Not in this market anyway.

Yet they are doing that, and what’s more, they’re jumping into the crypto Top 10 as if they belong there.

That should be setting off HUGE alarm bells!

Reality check

I don’t care how good your coin is, it still has to prove itself. You can’t just step into the ring from the outside and immediately expect to take on the reigning champions.

Even though some of these coins are not entirely new projects, the coins in their current forms are. These are “ARE GOING TO” coins; as in: “we are going to disrupt lending…”, or “we are going to pay rewards based on…” etc

These projects are still in development! How can they possibly compete against well established, tested and proven crypto projects?

Here’s a link to the DOT FAQ page, go read it for yourself:

  • “DOT will serve three key functions in Polkadot…
  • “The second function of DOT will be to facilitate the consensus mechanism…
  • “The third function of DOT will be the ability to add new parachains…
  • “What rights will DOT confer…
  • “DOT holders will have certain functions within the Polkadot platform, including:

That’s on the website of the coin now ranked 6th by market cap on CoinGecko. That puts it ahead of coins such as Litecoin, Bitcoin Cash, Binance Coin, EOS, Tron…

You’ve GOT to see something radically amiss here!

Look at the YFI page:

YFI ranks 28th on CoinGecko, just behind Iota. It’s ahead of BAT, OMG Network, Ontology, ZCash, Dash…
Come ON guys!

YFII is like a little YFI clone-sister:

What you see on their websites is NOT a poor reflection on any of those projects! They’re being honest. They’re telling it like it is. They’re not the ones generating the hype (or surely all projects would try the same thing!), it’s the frenzied investors who are doing all that – those buying tickets for the runaway train.

Further Analysis

The scary thing is that Polkadot (DOT) isn’t even a true DeFi project (though it has elements of DeFi in it), it’s more about cross-chain interoperability. What this indicates to us is that the 2020 DeFi hype is spreading into other areas of crypto.

In some ways this is great: more projects get attention, altcoin winter can become a thing of the past and crypto projects can make their way into the mass media.

But on the other hand: the runaway train gains momentum and increasing numbers of passengers place themselves in jeopardy by focusing only on the hype and failing to heed the warning signs.

Again I say: this post is not about any project being good or bad, I’m not here to endorse any project or to warn people off any project. This post is not about the projects at all, it’s about runaway investor sentiment and the dangers of their hyped mentality.

Final considerations

I’ve said before that I’m not interested in lending platforms.

From https://mentormarket.io/cryptocurrencies/bit-brain/defy-the-market/

I stand by that, but that’s my choice. If you choose to be a money lender, then so be it. But if you do, then just remember a few other things:

Not your private keys, not your crypto. – Who holds the private keys of the coins you are lending out? Do you have equal value collateral for them? Is it a trust -based system? Is there a smart contract which handles the transfer of funds – and if there is – have you read the code of that contract? Has that code been audited by someone you trust?

The flavour of the month is seldom a good idea as an investment. Like a pyramid scheme: those who get in early are those who score. The rest may become bag-holders.

There are well-established older coins out there with strong fundamentals. Some are very cheap. Some are well -proven. I see bargains wherever I look. I have been buying altcoins this year, and all those I’ve bought are older coins – those which have already proven themselves through the crypto winter of 2018. Find the cheap, old, good coins which don’t have an cult of crypto noobs shilling them. “Be fearful when others are greedy, and greedy when others are fearful” – yes, I quoted Buffett. He’s not right about crypto, but he is right about that.

Conclusion

Crypto looks good, crypto looks strong. A string of recent maniacal decisions by the Fed (and similar institutions in other parts of the world) have only made crypto look stronger than ever before. Altcoins are doing well and BTC is slowly gaining ground against fiat. We can expect a great deal of hype in the crypto markets, hype which will cause crazy volatility.

You could trade the crazy volatility, but is it worth the effort and stress? My approach is to ignore it all and to hold what I have, adjusting a little here and there when necessary.

Leave the hyped coins to the new money. Let the weak hands pump it and dump it – you don’t need to be a part of that. If you do make huge profits on risky investments, then good for you, but don’t count on it happening and never risk what you can’t afford to lose. Crypto should be an investment for the future, not a gamble.

Yours in crypto

Bit Brain

All charts made by Bit Brain with TradingView

“The secret to success: find out where people are going and get there first” 

~ Mark Twain

“Crypto does not require institutional investment to succeed; institutions require crypto investments to remain successful” 

~ Bit Brain

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