September 28, 2020 / In the world

Bitcoin Outflow Is Associated With DeFi Sector Growth

bitcoin dollar

Withdrawals from crypto exchanges can also be related to the growing popularity of long-term investment strategies and the actions of new investors who choose to entrust money management to intermediaries.

The balance of Bitcoin on the wallets of major cryptocurrency exchanges fell to the lowest level since November 2018, reports Coindesk. Some experts believe that this time the outflow of assets from centralized exchanges is associated with the growth of the decentralized finance (DeFi) sector and the popularity of long-term investments.

Investors were withdrawing funds from cryptocurrency exchanges due to the Bitcoin Cash hard fork in 2018. Market participants wanted to get new tokens, for which many transferred their assets to personal wallets.

However, that time, the outflow of assets does not necessarily indicate a bearish trend. Back in the spring, Glassnode analysts wrote that the low balance of exchanges may reflect the optimistic views of Bitcoin holders, among whom long-term investment strategies are gaining popularity.

In a conversation with Coindesk, CEO at Digital Assets Data, Mike Alfred, confirmed that the decline in balance sheets could indeed be attributed to the actions of investors who are transferring assets to cold wallets.

Recall that in mid-August, the developer of software for business intelligence MicroStrategy, whose market capitalization is estimated at $ 1.2 billion, invested $ 250 million in Bitcoin. The company said that the investment was part of a “two-way capital allocation strategy.”

Bitcoin Tokenization

The DeFi sector experienced explosive growth in 2020. By the end of September, the volume of funds blocked in the blockchain for the needs of DeFi projects exceeded $ 11 billion, and the tokens of these projects became one of the most profitable assets in the cryptocurrency market.

defi tokenization

A noticeable decline in Bitcoin balances of cryptocurrency exchanges began in March 2020, when the value of the asset fell to a 10-month low. Experts from the research company Arcane Research partly explain this by the actions of members of the DeFi community, who are toning Bitcoin, translating it into Ethereum protocols.

During the same period [from March 15, 2020], more than 100,000 BTC entered the Ethereum protocols, which may partially explain the outflow, the representatives of the company note.

Note, that the tokenized Bitcoin became one of the largest DeFi assets earlier last week. According to Dune Analytics, over 108 thousand BTC have been tokenized to date, the value of which at the current exchange rate exceeds $ 1.1 billion.

Inexperienced Investors

Other experts believe that the outflow of cryptocurrency is associated with the entry of new investors into the market after the start of the COVID-19 pandemic. These investors, who are mostly from traditional markets, choose to entrust the management of their cryptocurrency portfolios to intermediaries such as investment funds.

Alfred notes that companies like Grayscale Investments continue to ramp up their investment in Bitcoin. So, over the past seven days, the volume of the Grayscale bitcoin trust has grown by more than 17 thousand BTC. GBTC now manages assets worth $ 4.8 billion.

New investors choose cryptocurrency because of the policies of the US Federal Reserve System (FRS) or other factors. However, unlike the old generation of crypto investors, most of them do not understand how cryptocurrency works, so they prefer to entrust their capital to more qualified specialists.

According to Alfred, these people don’t understand much about Bitcoin. They just know they want to own the cryptocurrency, and they don’t want to do it with their own hands.

Simon Chen, executive director at Hong Kong-based crypto lender Babel Finance, holds the same position. According to him, assets are being withdrawn from exchanges in favor of decentralized exchanges and investment funds.

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