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January 29, 2021

Weekly Market Roundup

To use an old saying – “there are moments that define a person’s whole life…” – and for digital assets, this moment was supposed to have been the adoption of Bitcoin and other tokens  by institutional market participants.

While this development (which only gathered momentum last year) is in part due to better infrastructure provisions such as prime brokerage, insured custodians and so on; it has had a profound effect on markets. This is the current rebellion that is taking place in the equities market that may finally break up the floodgates.

To wit, while the “run” on shorts by the retail-based Reddit community may have been somewhat unorthodox, it is the reaction by counterparties that serve the very same retail market that may prompt market participants to re-assess their investment behaviour. Sure, the tidal shift will not happen overnight but, given the earlier mentioned improved infrastructure, it has never been easier to enter digital markets and even Decentralised Finance (DeFi) markets.

Furthermore, this move will be aided by the likes of Grayscale Investments which recently filed to register five new trusts for cryptocurrency assets, several being connected to the DeFi space, which also means that it is not just large-cap Bitcoin that will get the attention of the professional money management crowd.

Looking at the recent market price action, and heading into the closing stages of the week, as well as the month, Bitcoin is trading firmly above the $30,000 mark. Granted, the aforementioned frenzy in equity markets actually helped to ensure that Bitcoin and the rest of the market did not falter. The hot money chase in equities looked set to continue until brokerage firms began to unravel and acted unfairly to retail. The story for Bitcoin and the rest of the market could have been very different if these actions did not take place.

Instead, the hot money flows back into digital assets. DeFi may not have been the ultimate landing spot, but the fact that so much Bitcoin is locked on Ethereum means that any upside by Bitcoin invariably translates into increased amount of capital that is available across the DeFi ecosystem.

As a result, the total value locked (TVL) on DeFi platforms now stands at just shy of $27 billion, with Maker accounting for $4.27 billion and Aave accounting for $3.95 billion. Elsewhere, the battle for DEX supremacy continues to heat up between Uniswap and Sushiswap. So stark was the recent outperformance by UNI that the spread between UNI and SUSHI tokens widened to record levels, after having traded close to zero earlier this month. Not surprisingly, many caught on to the development and, given the raft of planned updates by SUSHI, including the eagerly awaited BentoBox and many others, resulted in an aggressive spread narrowing during the closing stages of the week.

Still, the two protocols are expected to grow and, despite the mammoth trading volumes, Uniswap only commands a market cap of $14 billion (fully diluted), and Sushiswap is trading at a much lower valuation of $2 billion.

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