In its latest analysis, IntotheBlock delves into the dynamic shifts unfolding in the realms of traditional finance and decentralized finance (DeFi) this week. The spotlight is on the intense competition surrounding Bitcoin ETFs and the notable upswing in demand for on-chain lending protocols.
Examining the Bitcoin ETF Competition a week after their launch has left the market contemplating their short-term impact. Bitcoin’s value witnessed a 16% dip from its post-approval high, currently hovering around the $41,000 mark. The ETF competition, however, is showing signs of intensification.
The long-term rotation trend comes into play as Bitcoin’s average holding time for transacted coins reaches an all-time high. Following Grayscale’s successful conversion of its GBTC product into an ETF, albeit maintaining a substantial 1.5% fee, the fund experienced a significant outflow of $2.2 billion, translating to almost a 10% loss in assets under management. It remains unclear how much this has affected market sell pressure versus the assets moving to competing ETF products. Notably, despite GBTC’s outflows, Bitcoin ETFs collectively gained approximately $1 billion net, positioning them as the second-largest commodity by assets under management after gold.
Bitcoin’s Holders Shift As DeFi’s Credit Boom
Shifting focus to DeFi’s Credit Boom, the demand for leverage in the crypto space is palpable, as evidenced by the remarkable growth in DeFi lending protocols. Active loans within these protocols have nearly doubled over the past year, surpassing $7 billion for the first time since June 2022.
This surge is further underscored by a 1.5-year high in outstanding loans, indicating a recovery in borrowing demand, particularly during the last quarter of 2023. Notably, this demand appears largely organic, with established lending protocols experiencing increased activity even without significant incentive programs. Aave, a prominent player in this domain, continues to dominate, issuing over 50% of loans through its platform.
Aave’s v3 platform on Ethereum has also witnessed a surge, with ETH deposits reaching an all-time high of over 600,000 ETH. This influx of deposits emphasizes that the rise in the value of outstanding loans isn’t solely tied to escalating cryptocurrency prices. Additionally, the amount of USDT and USDC in Aave v3 has consistently set new all-time highs.
While DeFi may not be making as much noise on social media platforms, the robust usage of lending protocols indicates a quiet boom. DeFi blue-chip projects are emerging from the bear market, experiencing renewed interest as the demand for on-chain financial services gains momentum. If the ongoing bull market persists, this credit boom is poised to gather further momentum.