One of the most important dynamics in crypto is the BTC dominance cycle. As BTC 🌚 profit flow into alts. It’s a well known phenomenon and we’ve watched it play out a number of times. In 2017 we saw the same cycle emerge in ETH<>ERC20. I think a third cycle is starting.
The flow of funds out of large cap ERC20 tokens mostly went back into ETH and BTC in 2018 ☠️☠️☠️. But in mid 2019 we started to see a flow in the opposite direction from ETH/BTC into emerging DeFi tokens.
By late 2019 and into early 2020 funds were flowing out of these tokens but not into ETH/BTC! They were actually moving into low cap DeFi projects, a great example being KNC.
This impacted MKR significantly as the king of DeFi tokens, but LINK was also impacted (arguably not DeFi but in the same space). REP was hit and 0x and a number of others including SNX.
Now we have this complex dynamic of cycles and epicycles. With ETH rising a lot of the large cap DeFi projects have performed well in the last few months. But those who saw these moves early are moving into smaller DeFi projects very quickly.
So we are seeing across the board rises recently in tokens like LRC, RPL, LEND, REN, GNO, RUNE and AST.
The question is whether these gains bypass large cap DeFi projects straight into ETH again or whether they flow back to MKR and others.
But there is another question of whether the overall Ethereum momentum translates into further ETH appreciation so the top down ETH -> ERC20 cycle kicks off again.
What is petty clear is that outside of the macro market insanity the only real things going on in the space are happening on Ethereum in both DeFi and scaling. And people are finally noticing.
So we end up with a number of interrelated cycles and epicycles that if you can find a pattern will be very very powerful.
QE ∞ -> BTC/ETH 🚀
ETH 🚀 <-> ERC20 🚀
DeFi traction <-> ETH 🚀
DeFi traction <-> DeFi tokens 🚀
🦍 DeFi tokens 🚀 <-> 👶 DeFi 🚀
ETH 🚀 <-> ERC20 🚀
DeFi traction <-> ETH 🚀
DeFi traction <-> DeFi tokens 🚀
🦍 DeFi tokens 🚀 <-> 👶 DeFi 🚀
Add to this the second wave of DeFi tokens COMP, UMA, BAL, CRV?, UNI?, PieDAO and more... and we have an extremely interesting market dynamic that will pull in the majority of crypto attention this cycle.
Another component which makes analysis of this dynamic much harder is the wave of stablecoins that now exist that was not available in 2017. Profits can now be taken directly into DAI/USDC and can bypass ETH/BTC altogether...
And finally we have the emergence and coming dominance of low cap liquidity in by AMMs like uniswap/balancer. Combined with liquidity incentives made popular by SNX and you see tens of millions of liquidity flooding into these pools rapidly improving price discovery.
Ultimately we have a far more complex market than 2017 and if you are turning up with the same tired old theories from back then you are going to get steamrolled by the wave of DeFi enthusiasts who understand these dynamics extremely well already.
