Bitcoin vs Ethereum: Moon crash shakes DeFi market and sinks ether price

Traders are moving away from investments linked to decentralized finance (DeFi)in the last sign of how the $40bn collapse of the luna cryptocurrency has shaken a key part of the digital asset market.

Etherthe second largest cryptocurrency in the world and a sentiment indicator on the defi market, $100 billion, has lost more than a third of its value in the last month. His fall is significantly more serious than the bitcoin 23% declinethe oldest and most expensive digital token on the market.

Many advocates of cryptocurrencies consider that DeFi is one of the industry’s most promising innovations of digital assets, with projects that intend to operate without centralized intermediaries such as banks Through the use of Automated systems that distribute control to the most interested parties. However, the bankruptcy last month of Moonand his terraUSD pegged stablecoinrevealed the risks of investing in DeFi projects and the possibility of catastrophic failures in the design of the programs that support their operations.

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“The trust in the cryptocurrency ecosystem And in the decentralized finance remains at historically low levels” after the earth and moon bankruptsaid Sipho Arntzen, an analyst at Swiss private bank Julius Baer, ​​adding “we don’t expect a quick recovery for now.”

The stablecoins act as lubricants transactions in DeFi marketsand the disappearance of land it was seen as a particularly heavy blow to confidence in the sector. Terra was designed to equal the value of the US dollar through a financial relationship with her crypto sister contrast to other stablecoins that claim to be backed by reserve portfolios.

The fall of ether is an example of how crash of terra and moon has caused a chill in the DeFi sector in general, according to analysts. The price of the token is linked to the expectations of investors about the future of DeFisince many of the computerized financial applications of decentralized market are built on the ethereum blockchainwhere is andther.

The investors withdrew $56 million of investment products in ethereum in May, which raises the net outflows this year $250 million, according to data from the digital asset manager Coinshares. the products of bitcoinon the contrary, have received u$s 369 million net income in 2022.

“Given the [Ethereum] Its main objective is to provide the infrastructure for the emerging world of decentralized appswe believe that these falls are symptomatic of a loss of confidence in the ecosystem DeFi broader,” Arntzen said.

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Some investors argue that the blow to ether also reflects a reassessment of future demand for multiple facets of the cryptocurrency industrysuch as the digital collectibles known as non-fungible tokens (NFTs) and the loan and credit protocolswho also often use the network ethereum.

ethereumWhat Netflix or any stock, reflects the expectation of future demand,” said Ilan Solot, a partner at Tagus Capital. He said investors were doubting the level of future demand for the network. ethereum as economic prospects darken.

“If the Federal Reserve is tightening [la poltica monetaria]the world is in recession and people need to pay $4.50 per gallon for gasoline, they will have less to invest in defi or spend on games blockchainI added.

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Investors have also taken a shine to risk assets in general, said Daniel Ives, an analyst at Wedbush. He said that DeFi was “caught in a hazard general tornado”.

The derivatives markets suggest that investors remain nervous about the near-term prospects for etherdespite of optimism about bitcoin’s trajectory. While options markets signal a positive tone for bitcoin over the next month, investors see tough trading conditions for ether over the same time horizon, said Adam Farthing, chief risk officer for Japan in the creator of B2C2 market.

“The market has become much more cautious about the ether because of his recent performance and in a way he hasn’t with the bitcoin“, said. bitcoin still enjoys the reputation among some investors to be a hedge against inflationdespite having lost more than half its value since its November high.

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Another challenge facing ethereum is the long-awaited shift from the network to a different kind of system blockchain called proof of participation [Proof of Stake o PoS]. This change is expected to alleviate the frustrations surrounding the old transaction fees for ethereum and clumsy processing speeds.

Ingo Fiedler, co-founder of the Blockchain Research Lab, said that the change of ethereum blockchain “could go wrong, since any code change is risky for any software.” He added that there may be unknown risks that will only come to light once the new ethereum system be tested in the real world.

“We have seen this escape from the safety of terra towards [la stablecoin rival USDCoin] and into assets that people perceive as more established, and so I think anything that’s new, or too technical, is probably going to have people a little bit off,” said Teana Baker-Taylor, vice president of regulatory policy and strategy at Circle crypto firm.