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November 25, 2020

In Conversation With

Why the DeFi market is extremely frothy with Nic Carter


Hard Assets, Exchange Infrastructure, DeFi and More

Nic Carter, co-founder of Coin Metrics, commented on the monetary policy of global central banks and how the stage is set for bitcoin, even though BTC didn’t need a catalyst.

(10:21) “It certainly looks like we’re in for a pretty rocky decade from a monetary perspective, so things couldn’t be better for hard assets like gold and bitcoin.”

He also remarked on the limitations of cryptocurrency exchange infrastructure.

(14:09) “The bitcoin market is fairly informationally efficient, which means that it incorporates new information into the price in a fairly rapid manner. There are constraints to that efficiency and one of them is the market’s ability to absorb capital in a timely manner. And the exchange infrastructure is one of those constraints for sure. There is still a lot of regulatory uncertainty in the US as to how exchanges should be regulated, there’s no federal regulator for exchanges. And all of these exchanges for the most part are regulated by the states and a patchwork of different regimes. Most of the real liquidity is offshore, which complicates the matter…I would expect a lot more consolidation. I would expect a lot of these exchanges to get out of the business of custody and outsource that custody to third parties, BitGo, Fidelity Digital Assets, those are some of the emerging big custodians.”

Coin Metrics isn’t that involved in De-Fi but he pays attention to it. Carter issued the following waring:

(19:23) “In the last couple of weeks, it’s become extremely frothy. I think that’s evident to anybody on the sidelines. There’s a lot of projects which have pretty extractive models, some which are effectively Ponzi’s unfortunately that have yet to wind down. And I think we’re going to see the moment the enthusiasm for DeFi lapses, some of these higher profile and more marginal projects will wind down. There’s a lot of leverage built up in the system. And a lot of these systems are built on positive feedback loops, which work great when things are on the way up and then are extremely bad on the way down.”

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Gerelyn Terzo
Gerelyn caught wind of bitcoin in mid-2017 and after learning about the peer-to-peer nature of Satoshi's creation has never looked back. Previously she covered institutional investing and fintech for several major trade publications. Gerelyn resides in Verona, N.J.

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