100,000+ Bitcoins Are Locked In DeFi Projects Now. Is That A Good Thing Or A Bad Thing?

September 16, 2020

According to decentralized finance news aggregator DeFi Pulse, more than 100,000 bitcoins are tied up in decentralized finance related projects. At nearly $14,500 Canadian per Bitcoin, that’s $1.45 billion. If you consider that bitcoin’s current market capitalization is hovering around $264 billion Canadian, that means 0.5% of all the bitcoins in the world are tied up in these projects.

By now, both short-term crypto traders and long-term investors should know that decentralized finance is the hottest buzzword in crypto since initial coin offerings took over the space back in the summer of 2017. The question now is, is the concept of tying up digital assets and investments a good thing or bad thing for bitcoin?

 

Why Locking up Bitcoins in DeFi Projects Is Good for Investors

Supply and demand go hand-in-hand. If there are fewer bitcoins out there to be had, each coin is worth more money (because of scarcity). Those bullish on the concept of decentralized finance will definitely point out that most people will still use Bitcoin as their base currency when getting involved with these projects, which means that coins that could be flowing elsewhere are staying locked up. Just look at MicroStrategy buying up large chunks of the bitcoin supply.

With the value of these projects increasing over the long run, it only makes sense that the value of bitcoin would also increase dramatically over that time.

 

Why Locking up Bitcoins in DeFi Projects Is Bad for Investors

As is always the case in crypto investing, there is a yin to every yang. Those bearish on Bitcoin and decentralized finance will point to many instances where DeFi projects are coming and going. Hot Dog, Popcorn and SushiSwap are three examples. The latter project is still seeing investors buy the token, but the market capitalization is plummeting. Hot Dog and Popcorn on the other hand went from being worth millions of dollars to zero dollars in no time at all. This makes the argument that many decentralized finance projects don’t offer any fundamental value a lot easier to justify. Similar to bitcoin prices fluctuating wildly due to low trading supply.

 

What Is an Investor to Do?

As always, diversifying your range of investments is the key to long-term success, whether we are talking about crypto or any other investing instrument. Don’t put all of your eggs in one basket. Even if you believe having an enormous amount of capital tied up in decentralized finance projects will not only increase the value of Bitcoin and other cryptocurrencies, but also contribute to a worldwide revolution, you still have to be cognizant of the fact that at any given time, whales can choose to pump or dump these coins and leave retail investors like you to take significant losses.

Even in a decentralized world, the rich always get richer. Follow the market closely. When you’re ready to make the decision to invest in Bitcoin or DeFi, use Netcoins. It’s the most respected and trusted cryptocurrency exchange in Canada.

Do you want to purchase bitcoin? Netcoins has you covered with lots of different cryptocurrencies!