The past two months have been brutal for the DeFi market. While fundamentals are arguably stronger than ever (as the total value set in DeFi contracts and other metrics ticks higher), space-related coins, together with Ethereum, have plummeted from their summer highs.
An analysis by a crypto-asset analyst in early October showed that the average DeFi coin has fallen 65 percent from its summer highs. Since that analysis, the state of the decentralised financial market has deteriorated as many ethereum-based coins have continued their decline.
However, Su Zhu, the CIO and CEO of Three Arrows Capital, believes that the opportunity to shorten this altcoin sector is probably over.
DeFi short opportunities may no longer be as lucrative
While Three Arrows Capital provided its fair share of investments in the DeFi area, Su Zhu was one of the first investors to predict a decline in this sector, or at least in Altcoins, compared to Bitcoin.
The prominent investor now believes that DeFi shorts may not be a lucrative investment opportunity from here.
He does not believe that „DeFi shorts have a good return“ against the US dollar at this time. Rather, he believes that „top tier“ projects are reaching points where long-term investors will use Fiat to accumulate long-term investments.
However, he limits this by saying that he expects „in the coming months“ 95 percent of all Altcoins to fall against Bitcoin Benefit.
It is not clear which coins fit into this basket and which do not.
It is better not to expect a further decline: Top cryptanalyst
Even if the profitability of DeFi shorts can be questioned, this does not mean that this area has no chance of falling even further from here.
Qiao Wang, crypto-asset analyst and former product manager at Messari, comments:
„I am constantly updating my views, and unfortunately it looks as if there will be even more pain with DeFi. Originally I thought that we would not experience an 80-90% crash, which is typical for Alts due to the high level of development of the DeFi investors, but this thesis is currently being rebutted“.
He particularly highlighted the price action on four crypto-currencies: Yearn.finance (YFI), Aave (AAVE), Uniswap (UNI) and Synthetix Network Token (SNX).
All four of these crypto currencies, which form the core of the entire DeFi space, have bled massively in the last few days. The decline of these coins means that investors should be bearish towards the rest of the DeFi space due to their affinity.