On Tuesday morning, Bitcoin once again dropped under $10,000 and Ethereum pushed lower. After a poor open in legacy markets, including gold, the leading cryptocurrencies were brought lower.
Top decentralized finance (DeFi) coins based on Ethereum, though, have embarked on a healthy recovery. This comes after a brutal drawdown of 30-50% for most prominent altcoins, triggered by fears of a return to a bear market.
Related Reading: Here’s Why This Crypto CEO Thinks BTC Soon Hits $15,000
Ethereum DeFi Coins Bounce After Brutal Drop
Data from CoinGecko indicates that top decentralized finance coins are up 3-10% in the past 24 hours after a brutal correction over the past week. The coins that have bounced include Aave, UMA, Compound, Ren, Status, and ThorChain.
DeFi coins may be benefiting in the short term from adoption in China.
As reported by NewsBTC previously, DeFi innovator Cole Kennelly found that “the number of WeChat searches for DeFi is at record levels.” He noted that on September 2nd, there were nearly one million unique searches for the term “DeFi.” It seems as though these searches were for the English term, not the Chinese term.
This corroborates reports that DeFi’s growth is only starting in China. This may explain the ongoing rally in the Ethereum-based coins as the rest of the crypto and legacy markets slump.
There are also other long-term narratives that may be at play.
Andrew Kang, the founder of Mechanism Capital, commented on DeFi’s long-term trend:
“Long story short, smart money is starting to trickle in, with a lot of peripheral money potentially snowballing in after. And I didn’t even get to greater retail. DeFi development is hitting an inflection point. Those that have follow the space know how hard it is to keep up with the new projects even when researching on a full time basis.”
Natural Hard Caps to the DeFi Rally
There are natural hard caps to the ongoing DeFi rally that should worry medium-term investors, though.
According to Jacob Franek, a co-founder of crypto analytics firm Coin Metrics, extreme Ethereum transaction fees could put a stop to the bull run.
“Gas prices will put a hard cap on this DeFi bull run. To be expected and probably a good thing… High gas likely new normal.”
This has been somewhat echoed by Mutlicoin Capital’s Kyle Samani, who wrote in a blog published earlier this year:
“For the foreseeable future, it’s difficult to see decentralized venues overtaking centralized venues. While there are relatively clear forthcoming solutions to address latency and finality concerns, sophisticated traders 1) do not want block producers to front run them, 2) want to be able to cross-margin and offset positions to improve their capital efficiency.:
Until these issues can be solved, there may be a natural limit placed on how far DeFi can rally.
Related Reading: These 3 Trends Suggest BTC Is Poised to Bounce After $1,000 Drop
Photo by Alex Azabache on Unsplash Price tags: ethusd, ethbtc Charts from TradingView.com Despite BTC Drop $10,000, Top Ethereum DeFi Coins Undergo Strong Bounce
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