Ethereum backed DeFi projects have seen exponential gains in recent weeks. Some analysts are now suggesting that Bitcoin could start to lose ground
Ethereum has long been considered by some to have more upside potential than Bitcoin.
Bitcoin, for all intents and purposes, is a decentralized digital asset, whereas Ethereum can also facilitate smart contracts and host decentralised finance (DeFi) tokens, such as Compound token and BAT (basic attention token).
Bitcoin’s position can be seen as a double-edged sword.
On the one hand, it will always be seen as the first successful digital currency, thanks to blockchain and the underlying cryptography protocols. On the other, being the first of something also means being the oldest; therefore its network will show its age as more complicated protocols emerge in the crypto space.
This is where the DeFi problem for Bitcoin comes into play. For Ethereum, newer and more sophisticated financial instruments can be built on its blockchain — particularly as its developer team remains very active and has four times the number of developers than any other crypto project.
At the moment, there is $141 million locked up in DeFi by Bitcoin, leading to what so have argued is an inflated price.
Chris Burniske, a leading cryptocurrency writer, said on Twitter that, “DeFi is just getting started: “$BTC is great, emotional obsession with it is not —> it clouds rationality. #DeFi is just getting started, folks. Would hate for those who’ve been here the whole time to miss the boat.”
Altcoins that have benefitted from the DeFi boom have often been paired with BTC, meaning that traders must use Bitcoin to buy and sell altcoins, leading to Bitcoin’s ‘DeFi boom.’
This has also been a ‘locking up’ of an increasing amount of Bitcoin’s supply over time, leading to a decrease in supply, and thereby raising value.
As Bitcoin was built without the capacity for DeFi or smart contracts, some investors may begin to wonder what the point is in holding an asset that arguably doesn’t really do anything, akin to gold and silver.
However, crypto markets are fickle. The volumes that have given rise to DeFi projects could very easily work in the opposite direction to wipe out value in the form of a severe pullback — possibly taking Bitcoin with them.