Despite a potential collapse in huge Decentralised Finance (DeFi) yield farming returns in the next six months, the majority (64%) of panellists on Finder’s Cryptocurrency Predictions Report panel say DeFi applications will continued to grow steadily in value locked and user count over the next 12 months.
Of the remaining panellists just 13% are bearish on DeFi application growth and 23%, including LMAX Group currency strategist, Joel Kruger, are unsure.
“While we believe the growth is there over the coming years, we’re concerned about the potential for a bubble burst that compromises growth prospects over the next 12 months, with things having run so far and fast,” he said.
Over a third (37%) of the panel, including Alpha5 CEO, Vishal Shah, said it’s impossible to predict how long huge DeFi yield farming returns will last.
“As more enter the space to hunt the same yield, yields naturally collapse…And in some instances, even go negative when you adjust for costs of transaction and starting exposure. However, the failure of one is often supplanted by another hype. The continuity of the hype cycle will just be a function of greed. But there are very few platforms that appear to promise longevity,” he said.
On polar ends of the spectrum 13% of panellists think enormous DeFi yield farming returns will last for more than six months and 7% say they’ll collapse any day.
However the majority of those who gave a specific timeframe say big yields will last for less than six months (37% of the panel). Wave financial associate, Andrew Ballinger, warned 100% per annum returns are based on a short time window.
“As more players enter the space, inefficiencies will be arbitraged away and yields will consolidate. These 100% per annum returns are based on a short time window and can not be expected to hold across longer time frames. That being said, I expect DeFi yields to stay compelling, and am eager to watch the space develop further,” he said.
TradeStation Crypto’s head of product, James Putra, said a liquidity crunch would bring an end to strong yields.
“There are a lot of people unfamiliar with margin currently using leverage to drive up returns. Most of the projects are barely tested before being released into the wild. Watch for market structure events that will trigger a fast liquidation of open positions. People are not sure exactly what they own,” he said.
Putra is part of the nearly three quarters of the panel (73%) who called out ‘scams, excessive hype and market manipulation’ as a main obstacle to DeFi growth. Other obstacles include general cryptocurrency frictions (50%), a lack of public awareness (43%) and a lack of genuine value and real world application (27%).
Will Ethereum continue to dominate DeFi?
Nearly a third of panellists (29%), including Arcane research analyst, Vetle Lunde, said Ethereum will continue to dominate the DeFi landscape over the next 12 months,
Lunde noted that Ethereum has the first mover advantage despite high transaction fees and the uncertainty involved with the ETH 2.0 transition.
“Yet, protocols such as Polkadot and Solana could also experience more growth, and their interoperability could also be beneficiary for Ethereum,” he conceded.
The panel predicts ETH will be valued at US$513 by the end of the year on average as it continues to benefit from the DeFi boom and appreciation after the launch of ETH 2.0.
However ETH may lose market share over the next year, with 43% of panellists predicting there will be a few (less than five) and 21% many (more than five) separate popular widely-used DeFi ecosystems.
Still, nearly half the panel (48%) think now is the time to buy Ethereum, 42% hold and just 10% sell.
Finder Cofounder, Fred Schebesta, says it’s best to hold for now, given it’s impossible to predict how long the strong performance will last.
“Like Bitcoin, Ethereum could well see its market reflect equities. Despite being strong now, there is the question of how long that will last. Those holding ETH will rest well in accumulating more if we do go lower, but it’s never easy to sleep when you don’t hold an asset that’s changing the world month on month, whether reflected in price or not”.
Bitcoin price predictions
Bitcoin is set to hit US$14,283 by the end of the year, according to the panel average. However, predictions ranged from $7,000 to $60,000 and only just over half the panel (54%) say now is a good time to buy Bitcoin, compared to 39% who suggest holding and 7% selling.
Thomson Reuters technologist and futurist, Joseph Raczynski, said “holding” has been the rule but that things have changed.
“Buying appears to be a clear option as a hedge against the global economy. With more traditional bankers and financial companies buying it, it seems logical,” says Raczynski.