The DeFi market loses its ground as a $1,500 Bitcoin crash occurred within the span of the past 24 hours, leading many to believe that the worst may not be over yet.
While both cryptocurrencies and altcoins have decreased significantly, DeFi blue chips managed to bounce and are now slowly returning to their old ranges. Will another Bitcoin crash deal the final blow to DeFi or will we see the market withstand a bearish market reversal?
On December 8, Bitcoin ranged between $19,000 and $19,300 for the majority of the day. However, the situation has radically changed late at night as bulls failed to hold support at $18,900.
In the span of several hours, BTC dropped down to $18,600 only to range for a short while. But even at this price level bulls did not have any chance. Eventually, a liquidation cascade led to sellers dropping the leading cryptocurrency down to $17,600 this morning.
All markets have bounced since the crash to $17,600, leading many to believe that the NY trading season may save the situation.
For the market to look healthy again, experts believe that we must at least reclaim the previous $18,600 level which buyers have attempted to keep last night. But if stocks turn red as well today, the crypto market might confirm that it is not ready for a new ATH.
DeFi TVL drops only $700 million
According to market data aggregator DeFi Pulse, the recent market development did not shock DeFi too much. Since yesterday, the Total Value Locked (TVL) for decentralized finance only dropped from $14.9 billion to $14.2 billion. As a matter of fact, the drop is far smaller compared to what we have seen on November 26.
But while the overall DeFi market remains strong, its individual tokens are not doing that well. Almost all top 20 protocols have lost 3% in TVL on average. Although less known protocols are the ones to lose most of their value, even the famous DeFi blue chips were affected by the recent rise in volatility.
Is the crash over or will a 30% Bitcoin correction destabilize DeFi?
At the lowest point of today’s market, blue chips like YFI have lost up to 15% in value compared to yesterday. While these tokens have bounced, investors still suspect that this was not the final dip. If true, what can we expect to happen next in DeFi?
Historical DeFi Pulse data reveals that the market encountered strong support at $13 billion TVL following the last crash. At that time, Bitcoin temporarily crashed down to $16,000. If BTC revisits that area, we may see DeFi do the same. However, the minimal reaction that we have seen today may imply that even a crash further down will not scare DeFi investors.
But what happens if Bitcoin has a 30% correction, which historically occurs at some point during a bull run. In that case, the leading cryptocurrency would go down to $13,800 if not lower. Combined with panic selling and fear that the bull run may be over, a larger crash may definitely affect DeFi harder.
Market participants traded at these prices in November last time. During that period DeFi had a TVL of around $11 billion.
It is entirely possible for DeFi to lose its current ‘December altseason’ narrative and revisit a completely different environment compared to what we have today. But considering that DeFi is far more volatile than Bitcoin, even the blue chips may fare far worse than what we expect.
Would this mark the end of the DeFi craze? Certainly not. The market went through several corrections during its run from $1 billion to almost $15 billion. Despite the exponential growth, DeFi still kept its stability in check.
If this is only a temporary correction that the entire crypto market has to go through, then it is perfectly normal to expect a continuation of 2020’s bull trend.