COVID-19 Impact on Cryptocurrency: Rise of DeFi, Bitcoin Halving, and NFTs Boom
Summary:
This article outlines the impact of the COVID-19 pandemic on the crypto industry, highlighting the significant drops in value of Bitcoin and Ethereum in March 2020. It discusses the rise of decentralized finance (DeFi) and the role of Compound Finance in promoting yield farming. The rise in market capitalizations and rapid advancements in technology accompanying pandemic lockdowns are discussed. It details the concepts of Decentralized Exchanges (DEXs) and Decentralized Autonomous Organizations (DAOs), leading to a price explosion known as DeFi Summer of 2020. The article explains the third Bitcoin halving event in May 2020, the rise of Non-fungible tokens (NFTs) in 2021, and their increasing uses. It also documents the growth and decline of the NFT market over the years, mentioning OpenSea’s dominance and subsequent drop in trading volume.
The global health crisis instigated by COVID-19 heavily impacted both human lives and the global economy since its inception in early 2020. The crypto industry also faced significant repercussions, seeing the total value of the cryptocurrency market drop substantially in March of the same year. The Bitcoin value saw a steep decline with a 52% drop in dollar value in a single day, while Ether saw a 43% drop, causing disturbances in decentralized finance. The lockdown impacted the crypto world too but in a unique way. As people became restricted largely to their homes, there was a rise in screen time, which led to an increase in interest in cryptocurrency and subsequently, market capitalizations. This situation stimulated the acceleration of the development and implementation of emerging technologies unlike ever before.
Decentralized finance, or DeFi, saw its inception in 2017 with the creation of smart contracts on the Ethereum blockchain. Prominent early market players included MakerDAO (DAI) and Compound Finance (COMP). The latter introduced a method of arbitrage called yield farming or liquidity mining in June 2020. This strategy involves shifting crypto assets to earn maximum interest, fees, and rewards, and has since become a common practice. Compounding Finance also played a key role in decentralization by creating COMP, the first governance token, allowing users to have a say in DAO management. The year ended with decentralization becoming more common within numerous DAOs.
A Decentralized Autonomous Organization, or DAO, is essentially a company that abides by digital rules and isn't overseen by hierarchical management. DAOs aim to eliminate intermediaries in transactions, much like Bitcoin. By September of 2020, collateral levels in DeFi had risen from $700 million at the start of the year to $9 billion. Bloomberg referred to the rising trend of decentralized finance that made digital currencies the best-performing asset as "cryptocurrency mania".
Decentralized exchanges (DEXs), another type of DAO, already existed by 2020 with OasisDEX launching in 2016 and Uniswap launching in 2018. DEXs allow users to trade crypto assets on a peer-to-peer basis, i.e., without an intermediary, enabling the rise of automatic market makers that utilized yield farming. This flurry of activity led to a bubble, also referred to as a "period of price explosion", which is known in the crypto world as the DeFi Summer of 2020.
Just before the DeFi Summer kicked off, the third Bitcoin (BTC) halving occurred on May 11, 2020. As per this event, mining rewards were cut by 50% after every 210,000 BTC were mined. In 2020, the reward for mining a block was reduced to 6.25 BTC to prevent inflation and increase demand by slowing down production. At the time of the third halving, BTC was selling for around $8,800. It saw slight gains in July and August 2020, followed by substantial price increase starting October. By April 2021, it had risen to $63,000.
Nonfungible tokens (NFTs) are unique digital items on a blockchain. While they have been around for some years, their popularity didn't truly skyrocket until 2021, quickly becoming central to the tokenization of real-world assets. They find application in ticketing, licensing, gaming, identity verification, and music among others. The earlier uses were mainly for gaming, collectibles, and artwork.
CryptoKitties, developed by Dapper Labs, was a digital game launched in 2017 that used NFTs to collect, trade, and breed virtual cats and was a precursor for future NFT developments. The CryptoPunks series of collectibles also saw the light of the day in 2017.
In April 2021, Yuga Labs launched the Bored Ape Yacht Club series, and by the end of that month, all 10,000 had been sold, raising $3 billion. Later, in August, they launched the cheaper Mutant Ape Yacht Club, which still continues minting today.
From 2017, the number of NFT users has risen exponentially from approximately 120,000 users to 9.9 million users today. On the other hand, NFT revenue has experienced a nearly 40,000% increase from 2019 to 2021 but saw a sharp decline in 2022. OpenSea, an NFT marketplace established in 2017, held 87% of the NFT market at the beginning of 2022. However, its trading volume dropped by 99% within a year. Despite these numbers, NFT revenue continues to rise with expectations standing at $2.4 billion by 2024.
Published At
4/9/2024 6:05:00 PM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.