The Bloomberg Galaxy Crypto Index is up 66% in 2020, outpacing gold's more than 20% gain. Many experts warn that the cryptocurrency market is often very volatile.
The crypto craze called decentralized finance, or DeFi, has helped make digital currency the best performing asset this year.
The Bloomberg Galaxy Crypto Index, which measures the performance of the most popular cryptocurrencies, is up 66% in 2020, outpacing gold's more than 20% gain. One of the main reasons is the rise of Ethereum, which accounts for more than a third of the weight of the cryptocurrency.
According to Mike McGlone, strategist at Bloomberg Intelligence, the adoption of decentralized finance (DeFi) has fueled the rise of Ethereum.
DeFi is an ecosystem of financial applications built on top of a blockchain network. Here, users have full control of assets and interact through peer-to-peer, decentralized applications without any central authority.
Users are allowed to perform activities such as lending, borrowing capital, earning interest from an intermediary savings. The widespread use of blockchain makes DeFi more and more popular. Many DeFi applications run on the Ethereum blockchain.
According to Fasset, which operates a blockchain-based marketplace for infrastructure investments, DeFi's collateral has increased from $700 million at the start of the year to $9 billion. In addition to DeFi, Bitcoin is also seen as an asset to hold prices amid massive stimulus packages against the impact of the pandemic that could cause inflation and weaken the dollar.
“The crypto market has performed well during the Covid-19 crisis, in part because Bitcoin has become a safe-haven asset like gold,” Bloomberg quoted Marc Fleury, CEO of Bitcoin as saying. Executive of Two Prime Cryptocurrency Asset Management and Technology Company, comment.
"It's a tool that works well when the economy stalls," he added.
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Fed Chairman Jerome Powell announced his decision to keep interest rates low until 2023. Photo: Reuters.
In March of this year, the Bitcoin price fell to a low of $4,904 due to market turmoil due to the impact of the Covid-19 epidemic. However, by mid-May, the price of Bitcoin rebounded around $9,000 and surpassed the record of $12,000 in August.
According to CNN, market experts said that the Bitcoin price increased due to the severe weakening of the dollar. In recent months, the greenback's price has plummeted due to the US Federal Reserve (FED) maintaining low interest rates and the US economy's recession due to the impact of the Covid-19 epidemic.
In the policy meeting on September 16, the FED announced its decision to keep interest rates near 0% until 2023. Fed Chairman Jerome Powell warned of a slow recovery of the economy and the need for more support. from the government.
According to Mr. Powell, the Fed will maintain current interest rates until the labor market recovers as expected and inflation rises to 2%. This is a long way, as the number of Americans who lost their jobs since February still reached 11.5 million people. Average inflation over the past 12 months was only 1.3%.
MicroStrategy CEO Michael Saylor said that after the Fed's recent decision to ease the inflation target, he has moved all of the company's cash into Bitcoin.
“We are quite confident that Bitcoin is less risky than holding cash, even safer than holding gold,” he commented.
The world gold price is currently facing the biggest drop since the beginning of August, down more than 70 USD/ounce in just one week. In the session on September 22 (New York time), the spot gold price on the Kitco floor fell to $ 1,880 per ounce, the lowest level since mid-July.
However, many experts warn that the cryptocurrency market is often volatile. The cause of the bullish momentum was simply a wave of liquidity. Others say DeFi is not as decentralized as promised.
The Bloomberg Galaxy Crypto Index fell more than 8% in the three sessions to September 22 due to investor sentiment. The index is down more than 20% from its August high.
"The rally in dollar strength has weighed on all risk assets. Cryptocurrencies may lose steam after surging to 12-month highs in August," said Edward Moya. senior analyst at Oanda Forex Trading, comments to Zing.
Overall, investor interest in cryptocurrencies is growing as the derivatives market for Bitcoin and Ethereum expands. "DeFi makes investors more interested in Ethereum contracts. More and more crypto users are turning to derivatives to maximize their profits," said Aziz Zainuddin, Product Manager at Fasset, comments.
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