DeFi tokens are In for a ‘Rude Awakening’ as capital rotates into Bitcoin

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A rally in the Bitcoin market has made traders rotate their capital from the booming decentralized finance sector (Defi). Unlike Bitcoin, almost all the Defi tokens have plunged sharply on a 7-day timeframe and seem to be in a ‘Rude Awakening’. Kelvin Koh, the co-founder & CIO of the Spartan Group, expects DeFi’s downside correction to continue.
A rising Bitcoin market can make trouble for the decentralized financial industry (Defi), according to Kelvin Koh of the Spartan Group.
The co-founder and CIO said that he expects Defi tokens to experience sell-offs more and more unlike Bitcoin. He said that most of these altcoins surged sharply on extensive hype. Traders refused to acknowledge the risks of buying the tokens at their higher highs, echoing the infamous ICO boom of late 2017.
“When everything is going up, people don’t think about risks,” Mr. Koh added. “When asset prices go down, everyone will try to get out at the same time, creating a downward spiral. That’s why we advised against trying to chase after unproven lower cap DeFi tokens.”
His comments followed a sharp decline in DeFi tokens in the days of rally in the Bitcoin market trading. Data fetched by Messari indicates that parabolic altcoins, like Aave (LEND), Compound (COMP), Synthetix (SNC), and Kyber (KNC), fell by 13-25 percent in market capitalization.
The plunge  of DeFi appeared as Bitcoin established a year-to-date high at $11,420. So it seems traders sold their DeFi tokens to secure returns and ratate them into the Bitcoin market. Ethereum, the second-largest cryptocurrency by market cap, also benefited from a similar trading strategy.
Mr. Koh, also a former Goldman Sachs partner, called the capital outflow a “rude awakening” for DeFi maximalists. However, he also said the recent correction of DeFi tokens would wash away overhyped projects those with genuine, long-term business models can survive.
With “overhyped,” Mr. Koh referred to tokens that rose solely on the “yield farming” hype. He said certain projects offered higher yields to attract more liquidity and capital. Meanwhile, investors also added leveraged and risk to the system to secure better profits.
He said that it may become a zero-sum game for all.
“The top projects that have a real value proposition will do fine during this period,” the analyst added. “The weaker ones may not come out of the wreckage in such good shape. Hopefully, that will be a short and not so painful lesson for investors.”
Ryan Watkins, a researcher at Messari, said that DeFi have plunged and that shows it would eventually come on its own as investors start reallocating their capital from worthless store-of-value and “Ethereum killers” tokens.

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