How To Profit From DeFi Blue Chips #68
Market Meditations | January 6, 2021
DeFi is currently the fastest growing sector in crypto. The potential upside of catching this industry early can be enormous. So let’s learn how to do exactly that.
Dear Meditators
For today’s article, we take a look at the so-called ‘DeFi blue chips’.
DeFi is currently the fastest growing sector in crypto.
The potential upside of catching this industry early can be enormous ?
So let’s learn how to do exactly that.
US Federal Regulator Says Banks Can Conduct Payments Using Stablecoins ?The federal banking regulator wrote a letter stating that national banks and federal savings associations could participate in ‘independent node verification networks (blockchains) and use stablecoins’. The OCC said that blockchains ‘may be more resilient than other payment networks’ as a large number of nodes is needed to verify the transactions. Jerremy Allaire, CEO of Circle celebrated the news on Twitter, calling it ‘a huge win for crypto and stablecoins’. Read more.
Price of Stellar (XLM) Doubles in Just 24 Hours ?
At the time of writing, Stellar is +64% on the day and +133% on the week. One of the main reasons for such a surge could actually be the legal problems that Ripple faces. Another positive development for XLM came on Monday when the Stellar Development Foundation (SDF) announced that it will help develop Ukraine’s central bank digital currency (CBDC). Read more.Hong Kong-Listed BC Group Raises $90M as Crypto Demand Soars ?
BC Technology Group, the parent company of regulated crypto platform OSL has raised approximately $90 million in the form of a top-up share placement. Last year was a busy year for OSL, an institution-focused digital asset platform based in Hong Kong, providing brokerage and custody services. BC Group CEO Hugh Madden said the raised funds will help meet rocketing institutional trading demand and bolster its software-as-a-service business. Read more.Over $2 Billion of ETH is now Staked in Ethereum 2.0 ?
Over $2 billion worth of ETH has been staked in Ethereum 2.0 just over a month since the Beacon Chain went live.The Ethereum blockchain is the middle of a gradual evolution from its current proof-of-work (PoW) consensus algorithm to proof-of-stake (PoS) – with the aim of making the blockchain more scalable, secure and sustainable. Read more.JPMorgan Predicts Bitcoin Price Could Rise Over $146,000 in Long Term ?
According to Bloomberg, JPMorgan has said bitcoin could one day be trading over $146,000, based on the assumption that the cryptocurrency will grow in popularity as an alternative form of gold. Bitcoin’s market cap would rise another 4.6x for a theoretical price of $146k and match the total private sector investment in gold via exchange-traded funds (ETF’s) or bars and coins. However, the analysts argued that bitcoin’s price volatility needs to drop for institutions to make large allocations. Read more.
How To Profit From DeFi Blue Chips
It’s that time of the year again: alt season is finally happening. People who are newer to crypto get lost in a sea of opportunities regarding which projects are fundamentally sound and worth having some exposure to.
Hundreds of cashtags get mentioned on Twitter every single day by people who believe that their position will be the next 100x. Will this time be different? ?
For today’s article, we take a look at the so-called ‘DeFi blue chips’.
Decentralized finance is a sector within the industry that exploded with interest this year and the blue chips are known as the market leaders within the DeFi category.
Given that most of these blue chips have already made new highs and are now in price discovery, I wanted to take a look at what these blue chips are and whether it makes sense to have exposure to them now that altcoins have shown bullish momentum and are breaking out one by one.
Who Are The DeFi Blue Chips?
When people refer to DeFi blue chips they are talking about the current market leaders in DeFi, each within their own sector of DeFi.
Although subject to change, currently the blue chips are considered to be:
Uniswap (UNI), Yearn.Finance (YFI), Synthetic (SNX), Aave and potentially Sushiswap (SUSHI)
These assets combined are considered to be the ‘benchmark’ to beat for DeFi and given their current position, are expected to outperform most of the market.
Show Me Through Technical Analysis
Uniswap / USDT
Uniswap, the most popular decentralized exchange, supported over $58 billion in volume in 2020 which is an increase of 15000% compared to 2019.
Let’s go over every phase to better understand the dynamics at play and catch similar future opportunities.
Consolidation: A period of normally low volume sideways price action following an up or downtrend. During these periods it’s essential to establish key levels.
Key Levels: $4 is confirmed from price data to be a key resistance and backed by the psychological effect of $4 as a round number. Over the consolidation period, this was repeatedly tested.
Breakout: Once our key level breaks with conviction the breakout and uptrend begins. The best probability zone for accumulation then becomes the $5-$4 range. The technicals have confirmed an uptrend and in confluence with this, we have the overall aggressively bullish market sentiment across the crypto space.
Price Discovery: Ignoring the anomalous data of the first few days, the $5 level is our large major resistance before it’s nothing but air until all time highs and beyond. As such the asset looks to be on its way towards the high it set on its first trading day around $8.5.
Through taking a look at the technicals, we are now far better equipped to spot these type of breakouts throughout 2021.
Winning Coin vs. Basket of Coins
Just like with venture capital investments, believing you’re able to pick the long-term winner and betting your entire portfolio on it is generally not a good idea for the average person.
Early stage startups are risky and the vast majority of them ultimately fail. Although an alt season might make you think otherwise, the same is true for 95-99% of all crypto projects as well.
✅ TIP: Crypto and DeFi in particular move so fast that, unless you’re able to research full-time, it makes little sense to go out and try to pick out the winners on your own.
For most, the better choice is compiling a ‘basket of coins’ that give you wide exposure to the trend you’re betting on, without risking losing all your capital on one particular investment.
Like many have learned in the past, it’s very hard to out trade a market benchmark when crypto is in a bull market without taking unnecessary risks.
But… Am I Too Late?
Many of the coins I mentioned above broke their prior highs against USD this week.
Although this gives an impression that you’re too late and it’s better to wait for a dip, the opposite if often true.
Most people are scared to buy all-time highs and get left out as a result. From a technical perspective, a break off all-time highs is one of the highest probability trades you can take.
It shows strength and that’s exactly the signal we are looking for when trading in a bull market.
Coins that are lagging often seem the better choice, but having to wait comes with high opportunity costs when the market is as volatile as it is right now.
Conclusion
DeFi is currently the fastest growing sector in crypto and given its value proposition as building an alternative/better financial system, the potential upside of catching this industry early can be enormous.
Nobody knows who the winners will be in a few years, but projects that manage to succeed will be valued at many multiples higher as the space continues to mature and attract new capital.
For most, the better choice for exposure is compiling a ‘basket of coins’ that give you wide exposure to the trend you’re betting on, without risking losing all your capital on one particular investment.
My team and I voted on our favourite episodes of the Market Meditations podcast this year. I encourage you to revisit and learn from those who’ve already proven to be successful in the markets.
Never stop learning and be fully prepared for an amazing 2021!
1: TheCryptoDog
Venture Capital, Nootropics and Trading
TheCryptoDog is a succesful trader, entrepreneur and Twitter influencer. He is the founder of nootropics company Betterbrand and also a partner at a startup accelerator, where he leverages his background to support upcoming projects in the cryptocurrency space.
2: RookieXBT
All or Nothing, Rookie to Riches Through Crypto Trading
RookieXBT is a young Canadian crypto trader and investor that exploded on Twitter because of his risk loving but optimistic mindset. Rookie famously started putting magnets on his charts as a way to visualize his targets and managed to turn it into a well-known Crypto-Twitter meme going by the hashtag #magnetgang.
3: Qiao Wang
Building in DeFi, Algorithmic Trading and Successful Entrepreneurship
Qiao Wang (@QwQiao) is a former quant trader, successful entrepreneur and startup advisor. Qiao was a quant trader at Tower Research before co-founding Messari, a service that provides reliable data and market intelligence for crypto investors. He currently helps decentralized finance (DeFi) startups through the startup accelerator DeFi alliance.
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Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. I am not a financial advisor. Every investment and trading move involves risk. Do your own research when making a decision.
