The Fall of BTC and Its Impact on Mining Profitability
The fall in the value of cryptocurrencies has led to a sharp decrease in profitability of platforms where you can make a cryptocurrency deposit, borrow, or lend digital assets. In addition, investors withdrew more than $ 50 billion from projects in the field of decentralized finance, which has also led to particular circumstances.
What’s the Situation?
The last month turned out to be not the best for cryptocurrency. Bitcoin began to fall sharply on May 12 - from $ 58,000 to $ 52,147. And over the next two weeks, it fell to almost $ 34,000, according to Coindesk data. On June 22, it dropped below the $ 30,000 mark for the first time since the beginning of the year.
The Bitcoin rate collapsed due to several events at once. Tesla founder Elon Musk suspended the sale of cars for cryptocurrency and drew attention to the growth in the production of fuel, which is used to generate energy for mining and cryptocurrency transactions. On May 13, the US Department of Justice and the US Internal Revenue Service launched a project against the world's largest cryptocurrency exchange, Binance.
It is not only Bitcoin that is falling. From May 12 to May 24, the Ethereum rate decreased more than 50% - from $ 4,132 to $ 2,080. On June 28, the rate of the second most popular cryptocurrency in the world was $ 1,946. The fall in Bitcoin and Ethereum pulled down interest rates in farming projects. According to the director of Binance in Eastern Europe, they account for 51% of funds invested in the fastest growing sector of the cryptocurrency economy - decentralized finance (DeFi).
Back in May, the annual percentage on such platforms averaged over 10% and even reached 20%. However, rates have now fallen to the lowest levels. In addition, the DeFi sector itself has experienced the largest outflow of funds since at least October 2020. Crypto investors have withdrawn almost $ 50 billion from projects in the field of decentralized finance since mid-May, according to Defi Llama. The resource also states that the volume of funds invested by crypto investors almost reached $ 153 billion on May 14; however, it collapsed to $ 92.2 billion on June 26 already. People started to give preference to gold buffalo coins and other precious items for investment and collecting.
Why Rates Fell
The fall in profitability in DeFi is associated with the general fall of the largest cryptocurrencies - Bitcoin and Ethereum. The situation in the DeFi market can be compared to the traditional financial market. Due to the measures to support the American economy by the Fed, there is an excess of liquidity in the market. As a result, banks and financial institutions only accept surplus funds at a small rate.
Users who cashed out crypto loans used them for margin trading - for example, they invested borrowed funds in cryptocurrency in order to earn even more on the growth of the Bitcoin rate. When the price of cryptocurrencies is constantly growing, many people want to capitalize on such price movements. To do this, you just need to borrow dollars or stablecoins and buy cryptocurrency with them. Due to the recent rate jumps, many investors lost money and no longer want to play on the market.
What Will Happen Next?
In the previous stage of active market growth in the fall of 2017, rates in profitable farming projects reached 30%. With the loans received, users bought cryptocurrency and earned on the growth of the rate. It all ended in the spring and summer of 2018, when the value of Bitcoin decreased significantly. At the same time, DeFi profits also reduced - first to 15-20% and then to 6-9%.
With time, the rate of the cryptocurrency reached another historic highs, and the profitability of crypto platforms recovered slightly. When the cryptocurrency rate recovers, rates will also go up. And it will happen soon if there is demand and the need for liquidity. This may be facilitated by the new excitement around the cryptocurrency - for example, if Elon Musk writes on Twitter that he has reconsidered his attitude towards cryptocurrency and is ready to sell Tesla for Bitcoins. So let’s see what is next to happen.
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