Total Value Locked (TVL) on decentralized finance logs fell 24.7% to $74.3 billion last quarter, marking the second-largest quarterly decline for the novel financial services industry, behind only the quarter in which the Terra ecosystem collapsed.
The decline has seen DeFi record its first annual drop in total locked value, losing 76.4% of locked value since early 2022. That’s according to CryptoCompare’s Q1 2023 outlook report, which points to Ethereum’s dominance in the defi sector, with its market share remaining at 68.7%, up from 64.8% in the third quarter of the year.
The total value of Ethereum is still down 20.2% to $51 billion. It far outperformed Solana’s decentralized finance division, which fell 81.7% to $445 million in the fourth quarter, hurt by the collapse of FTX and Alameda Research, both of which had been heavily invested in the space.
Source: CryptoCompare
According to CryptoCompare’s report, a major factor in the DeFi space’s decline over the past year has been the decline in annual returns offered by the various protocols in the space. As these yields have fallen, the yields offered by traditional financial assets have risen as central banks resort to quantitative tightening to curb inflation.
At the time of writing, US bond yields allow users to earn 4.47% on 1-month Treasuries or 4.82% on 6-month Treasuries. The yield is currently inverted as investors anticipate a recession as 10-year government bonds pay out 3.381%.
Throughout 2022, CryptoCompare wrote, the average return across all liquidity pools in the DeFi sector fell from 6.24% to 1.87% by the end of the year.
Source: CryptoCompare
The report also notes that digital assets saw a “remarkable increase in correlation with traditional assets” over the course of 2022, with BTC and ETH down 65.4% and 19% on Treasury bills, respectively.
The company’s researchers noted that they expect the correlation between digital assets and stocks to decrease this year.
As CryptoGlobe reported, Bitcoin has just started trading above its 200-day moving average (MA) for the first time in over a year after the cryptocurrency’s price surged over 20% to over $21,000 in a week.
The 200-day moving average is considered an important technical indicator by traders and market analysts as it helps determine the overall long-term market trends. A moving average, according to Investopedia, is an indicator that helps “smooth out price data by creating a constantly updated average price.”
When an asset is above the 200-day moving average, it is considered to be in an uptrend. Bitcoin’s price started trading above its 200-day moving average around the same time its Fear & Greed Index rose to “neutral” for the first time in months with a score of 52, after falling to 6-on state of extreme anxiety. “ – with the collapse of FTX.
It is worth noting that the index is based on emotional behavior in the market. When fear sets in, some investors may see a buying opportunity, while greed may be a sign that a market correction is due.
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