Markets

The Rise of Bitcoin and Decentralized Finance (DeFi) Protocols

Bitcoin and the Decentralized Financial System (DeFi) enjoyed some positive results in Q1 2023. Thus keeping away from the bearish sentiments of 2022. But can the momentum continue in Q2 2023?

The cryptocurrency market has come a long way since the early days of Bitcoin’s launch in 2009. Over the past few years, the market has experienced exponential growth, with more investors and traders entering the space than ever before. This has led to a significant increase in the value of cryptocurrencies, despite the cyclical bearish sentiment.

In this case, the cryptocurrency market showed explosive growth in Q1 2023, dampening some of the bearish sentiment for 2022. However, time will tell what’s next for the market in Q2.

factors that helped

One of the reasons for the growth of the cryptocurrency market is the growing adoption of cryptocurrencies by mainstream institutions. More companies are now accepting cryptocurrencies as a form of payment, and governments around the world are beginning to recognize the uses of blockchain technology. This growing acceptance has helped legitimize the crypto market, making it a more attractive investment option for many.

Another factor driving the growth is the increasing use of cryptocurrencies as a store of value. With traditional fiat currencies being inflated, many people are turning to cryptocurrencies to protect their wealth. This increased the demand for cryptocurrencies, which boosted their value.

Moreover, the emergence of decentralized finance (DeFi) has played a role in the growth of the cryptocurrency market. DeFi platforms allow people to access financial services in a decentralized way without intermediaries like banks. This has opened up opportunities for people who have long been excluded from traditional financial systems. As more people realize the benefits of DeFi, the demand for cryptocurrencies is likely to continue to grow.

The growth of the cryptocurrency market is a testament to the increasing use of blockchain technology and decentralized finance. While the market undergoes bearish sentiment from time to time, the long-term trend is to the upside.

Strong start in 2023

The 2023 Q1 Crypto Report, shared with BeInCrypto, is the work of CoinGecko. It provides an in-depth analysis of the cryptocurrency market during the first quarter of 2023. The report covers various aspects of the market, including market capitalization, trading volume, and the performance of individual cryptocurrencies.

According to the report, the broader cryptocurrency markets enjoyed a quarter of recovery, with a total market capitalization of $1.20 trillion at the end of the first quarter. CoinGecko highlights a gain of 48.90% and $406 billion of the $829 billion cryptocurrency market cap at the end of 2022.

Source Crypto Market Overview Source: Queen Gekko

According to the above chart, the average daily trading volume has also increased. Here, note the 30% QoQ increase from -33% in Q4 2022 to a total of $77 billion in Q1 2023. Speaking of which, the CoinGecko team confirmed:

The trading volume saw a spike in January 2023, when the market started to rally. It then rose temporarily in early March due to the heightened volatility from the banking crisis, before easing in late March, when Binance removed part of its incentives for no-fee trading on BTC.

Bitcoin is primarily driving the market, showing a rally over the aforementioned period. In fact, BTC emerged as the best performing asset in the first quarter of 2023, with a gain of 72.40%. In doing so, it outperformed competing asset classes such as the Nasdaq and gold, which posted gains of 15.70% and 8.40%, respectively.

Bitcoin (BTC), compared to different asset classes Source: CoinGecko
Bitcoin (BTC), compared to different asset classes Source: Queen Gekko

Not surprisingly, the regions are starting to distance themselves from crude oil. Hence the noticeable decline. The decrease was attributed to inflation statistics in the United States, which indicated a decrease in the demand for oil.

Other directions

Moreover, the report notes that decentralized finance (DeFi) continues to be a driver of the crypto market. The group rose more than 65% in the first quarter, “translating to $29.60 billion in gains, primarily driven by the performance of the liquidity governance token.”

Here, the latter saw a jump of about 210%, to nearly $18 billion gross combined value (TVL). Needless to say, Ethereum’s long-awaited Shapella upgrade helped mammoth rise.

The Liquid Staking category is now the second largest in DeFi Source: DeFiLlama
Liquid Staking is now the second largest in DeFi Source: DeFiLlama

Decentralized exchanges DEXs continue to lead the DeFi ecosystem. Particularly in current times, amid a regulatory crackdown on centralized peers (CEXs) around the world, DEX has seen growth nearly double that of CEX.

However, regulatory uncertainty remains a challenge for the crypto market. Due to the increase in DEXs, regulators can initiate rules and regulations to limit innovation.

eroding fears trust

It is also worth noting that the cryptocurrency market is highly volatile, with prices often subject to significant fluctuations. While this may be a concern for some investors, it also presents opportunities for traders who can take advantage of price movements. As such, the volatility of the cryptocurrency market has played a significant role in attracting new investors and traders into the space. Cryptocurrency prices tend to have a direct relationship to events. The first quarter of 2023 is no different.

Timeline of different departments in 2023 Source: CoinGecko
Timeline of various blames in 2023 Source: Queen Gekko

Despite the occasional bearish sentiment, the long-term trend of the cryptocurrency market has been building. As the world becomes increasingly digital and decentralized, cryptocurrencies are likely to play an integral role in the financial system.

However, investors should be aware of the risks associated with investing in cryptocurrencies, including the possibility of significant price fluctuations and the potential for fraud and scams.

Disclaimer

Following the Trust Project’s guidelines, this featured article features opinions and perspectives from industry or individual experts. BeInCrypto is dedicated to transparent reporting, but the opinions expressed in this article do not necessarily reflect those of BeInCrypto or its employees. Readers should independently verify information and consult with a professional before making decisions based on this content.

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