DeFi sector struggles as Bitcoin sees another surge

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Updated on Dec 17, 2024

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Bitcoin price recently saw a significant increase, while at the same time, DeFi tokens started declining.
The two appear to be in negative correlation, and some speculate that BTC might be taking capital away.
DeFi projects have been losing money to Ethereum, as well, even though most are based on its network.

Both Bitcoin (BTC) and the DeFi sector have grown side-by-side in 2020 following the mid-March global economy meltdown, but now, the two started moving in the opposite direction. As Bitcoin price recently surged, the DeFi sector started seeing a significant decline, which caused some to start speculating about the two potentially being connected in some way.

DeFi projects in negative correlation with BTC

According to a recent chart shared on Twitter by the co-founder of crypto data firm Markets Science, Bitdealer, there might be some negative correlation between Bitcoin and numerous top DeFi tokens.

https://twitter.com/Bitdealer_/status/1322624548471267330

The chart includes a 45-day period that ends on November 1st. Seven of 13 DeFi tokens also showed a negative correlation with the second-largest coin, Ethereum, as well. This is quite interesting, considering that Ethereum still powers the majority of the DeFi sector.

Over the last few days alone, Bitcoin and DeFi have been moving in the opposite direction. As Bitcoin price saw a correction from $13.8k to $13.27k, DeFi TVL sat comfortably above $11 billion.

But, as soon as BTC started surging up towards $14k resistance, DeFi dropped to $8,33 billion. Earlier today, Bitcoin price declined again, while DeFi surged back towards $11 billion, currently sitting at $10.95b.

Is Bitcoin to blame for DeFi decline?

DeFi has seen significant struggle as summer started to end, as well. Binance’s DEFI Composite Index, for example, crashed by 64% from the end of August ($1,100) until today ($400). A similar situation was seen with TokenSet’s DeFi Pulse Index, which dropped by over 50%, from $130 in mid-September to $61.55 at the time of writing.

Bitcoin’s surge, on the other hand, came right after PayPal’s recent announcement that it plans to add support for BTC and a few other coins in months to come. The negative correlation caused some to speculate about Bitcoin potentially taking the capital away from DeFi.

Tyler Reynolds, one of Google payments engineers, noted that up to $50 million may have left DeFi for Bitcoin, which weakened buy-side pressure in the markets.

https://twitter.com/tbr90/status/1323268288730796038

DEXes have also seen a much lower volume in October, as opposed to the situation from September of this year.