Altcoin Roundup: 3 metrics that traders can use to effectively analyze DeFi tokens

DeFi presents a wealth of opportunity for investors, but there are also risks. Here are three metrics investors use to analyze decentralized finance tokens and their associated protocols.

Much to the chagrin of cryptocurrency proponents who call for the immediate mass adoption of blockchain technology, there are many “digital landmines” that exist in the crypto ecosystem such as rug pulls and protocol hacks that can give new users the experience of being lost at sea. 

There’s more to investing than just technical analysis and gut feelings. Over the past year, a handful of blockchain analysis platforms launched dashboards with metrics that help provide greater insight into the fundamentals supporting — or the lack thereof — a cryptocurrency project.

Here are three key factors to take into consideration when evaluating whether an altcoin or decentralized finance (DeFi) project is a sound investment.

Check the project’s community and developer activity

One of the basic ways to get a read on a project is to look at the statistics that show the level of activity from the platform’s user base and developer community.

Many of the top protocols in the space offer analytics that track the growth in active users over time. On-chain dashboards like Dune Analytics offer more granular insights into this metric such as the following chart showing the daily new users on the Olympus protocol.

Olympus daily new users. Source: Dune Analytics

Other pertinent data points to consider when it comes to evaluating community activity include the average number of active wallets on a daily, weekly and monthly basis. Investors should also look at the number of transactions and volumes transacted on the protocol, as well as social media metrics such as Twitter mentions that can help with gauging investors’ sentiment about a particular project.

Alert systems like Cointelegraph Markets Pro provide up-to-date notifications on a project’s Twitter mention volumes and unusual changes in trading volume that can be an early sign that a cryptocurrency is turning bullish or bearish.

CT Markets Pro twitter and trading volume dashboard. Source: Cointelegraph Markets Pro

Regarding project development and developer activity, GitHub has been the go-to place for learning about upcoming upgrades, integrations and where the project is in its roadmap.

If a protocol is boasting about “soon to be released” features but showing little ongoing development or commits being submitted, it might be a sign to steer clear until the activity is better aligned with the claims.

On the other hand, spotting an under-the-radar project with steady development activity and a committed user base could be a positive sign.

Look for steady increases in total value locked

A second metric to look at when assessing the overall strength of a project is the sum of all assets deposited on the protocol, otherwise known as the total value locked (TVL).

For example, data from Defi Llama shows that the total value locked on the DeFi protocol DeFiChain (DFI) has been rising lately following a major protocol upgrade, with the TVL hitting new all-time highs on several days so far in December. This signals that momentum and interest in the project are increasing.

Total value locked on DeFiChain. Source: Defi Llama

DeFi aggregators like Defi Llama and DappRadar allow users to dive deeper into the data and look at the statistics for different blockchain networks such as the TVL on the Ethereum Network or Binance Smart Chain, as well as by individual projects like Curve and Trader Joe.

Protocols with a higher TVL tend to be more secure and trusted by the community, while projects that rank lower on the list generally carry more risk and tend to have less active communities.

Related: Point of no return? Crypto investment products could be key to mass adoption

Identify who the majority token holders are

Other factors to take into consideration are the benefits that token hodlers receive for holding and being active in the community. Investors should also look into the manner in which the token was launched and who the dominant token holders currently are.

For example, SushiSwap allows users to stake the native token SUSHI on the platform to receive a portion of the exchange fees generated, whereas Uniswap, the top decentralized exchange (DEX) in DeFi, currently offers no such feature.

While other factors like trading volume and daily users have made Uniswap a legitimate investment for many holders, some traders prefer to hold SUSHI because of its revenue-sharing model and multichain trading capabilities.

On the flip side, caution is warranted when excessive yields are offered for low liquidity, anonymously-run protocols with little community activity because this can be the perfect setup for catastrophic losses. In DeFi, these are called rug pulls, and typically they occur after a large amount of money has been deposited onto smart contracts controlled by a single anonymous party.

Examining the token distribution for the protocol, as well as keeping an eye on the percentage of tokens allocated to the developers and founders vs. the tokens held by the community can give some useful signal on whether a platform could fall victim to a rug pull or the whimsy of mercenary capital.

If most of the available supply is held by the creators and backers, there is always going to be a chance that these tokens will later be sold at market rate if or when early investors choose to exit their position.

Want more information about trading and investing in crypto markets?

  • TerraUSD (UST) adoption backs LUNA’s ascension to a new all-time high
  • Binance CEO reveals one key factor for token listings
  • DeFi: Who, what and how to regulate in a borderless, code-governed world?
  • Animoca Brands’ treasury increased in value by 5X over two months
  • 3 reasons why DeFiChain (DFI) price has gained 60% in December

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Point of no return? Crypto investment products could be key to mass adoption

Cryptocurrency investment products could be a missing piece of the puzzle towards mass adoption, and are now becoming increasingly more common.

The first Bitcoin (BTC) futures exchange-traded fund (ETF) was launched in the United States back on October 19, 2021. Since then, a number of other cryptocurrency investment products have been launched in various markets.

That first ETF, the ProShares Bitcoin Strategy ETF, quickly became one of the top ETFs of all time by trading volume on its debut, and soon after, several other Bitcoin futures ETFs were launched in the United States, providing investors with different investment options.

To Martha Reyes, head of research at cryptocurrency trading platform Bequant, these options are important. Speaking to Cointelegraph, Reyes pointed out that in traditional finance, ETFs have “proved to be incredibly popular in recent years, with ETF assets expected to reach $14 trillion by 2024.”

Reyes said that investors who have been on the sidelines of the market may now choose to invest in cryptocurrencies if they prefer the “low cost, flexibility and convenience [of ETFs], especially as they then do not have to custody the crypto themselves.”

Custodying crypto assets, Reyes said, can prove a “technical barrier to some non-crypto natives.” The launch of crypto ETFs may offer investors the type of diversification they want in their portfolios through crypto, although some may want to access the market “via baskets reflecting different trends in this rapidly evolving market.” She added:

“Others prefer to be more hands on or have a combination of strategies. The important thing is that investors have options.”

Several options have, in fact, been launched over the last few weeks. United States-based firm WisdomTree has listed its cryptocurrency exchange-traded product (ETP), Crypto Mega cap Equal Weight ETP, on Euronext exchanges in Paris and Amsterdam.

Trading under the ticker symbol MEGA, the product is backed by physical cryptocurrencies including Bitcoin and Ether (ETH) and is rebalanced quarterly. WisdomTree also launched its WisdomTree Crypto Market (BLOC) and WisdomTree Crypto Altcoin (WALT) ETPs in Europe.

Similarly, in December, Bitcoin Capital AG released two ETPs on the SIX Swiss Exchange, offering investors exposure to Bitcoin and Ether. These products are actively managed by FICAS AG and are available to institutional, professional and private investors.

These products have so far been successful and more options are being launched on a regular basis, effectively boosting investors’ options in the market. To some experts, these products are part of the next step cryptocurrencies need to take to be widely adopted.

Investment products and adoption

To Reyes, participation in these investment products is so far “primarily institutional,” especially in countries like the United States in which only futures products are trading. She said that retail investors “are cognizant of the added rollover costs of a future versus a spot ETF, meaning underperformance versus the underlying.”

Reyes added that for “wide retail participation, we would probably need to see a spot product.”

Speaking to Cointelegraph Sui Chung, CEO of FCA-regulated crypto indices provider CF Benchmarks, said that cryptocurrency investment products are “significant drivers of mass adoption,” and while the firm would “like to see a wider choice of avenues” the impact of these products could still be significant:

“We shouldn’t underestimate the impact these products have in bringing new investors and capital to crypto assets and how this can accelerate long-term adoption.”

Karan Sood, CEO and managing director at Cboe Vest, an asset management partner of Cboe Global Markets, told Cointelegraph that increased participation from a diverse set of investors is “good for the market,” as it “increases liquidity and helps build out the market infrastructure.”

Sood said that before investing, investors should review their possibilities carefully as some products were initially launched to provide investors access to the cryptocurrency market, while others “try to provide a solution to Bitcoin’s extreme volatility problem.”

According to Sood, volatility is “endemic to the crypto asset space,” and sell-offs in which Bitcoin and other crypto assets lose over half of their value are fairly common, so much so that drops of over 20% are to be expected. He added:

“However, what is new is the availability of funds that allows investors to access Bitcoin exposure with strategies designed to reduce the impact of severe sustained declines.”

These funds, he said, take the “managed volatility set of investment strategies extensively used in conventional asset classes” and apply them to Bitcoin futures to protect investors against the cryptocurrency’s volatility.

This volatility is believed to be keeping some institutional investors on the sidelines and stopped regulators like the U.S. Securities and Exchange Commission (SEC) from finding ways to properly protect investors and accommodate for the innovation in the space.

To Chung, the cryptocurrency market has matured to the point there are now “core” exchanges like Coinbase and Kraken that ensure fair and manipulation-free trading, so market manipulation should not be a problem. Regulated products are, nevertheless, preferable for institutions and more conservative investors.

Considering the lack of a spot Bitcoin ETF in the U.S. and the disadvantages of futures-based products mentioned by Reyes above, retail investors are left either gaining exposure from other markets or buying crypto directly. These options are, nevertheless, not optimal for some.

Early stages for crypto investment products

Buying cryptocurrencies on the spot market has been the go-to strategy for most crypto investors over the last few years, but more conservative investors who may want to diversify their portfolios may be uncomfortable with the lack of regulation in the market.

As Cboe Vest’s Sood put it, when compared to the “trading and custody infrastructure that exists for conventional assets such as stocks, bonds and funds, there is little in the form of regulation.” This lack of regulation, he said, has been “exemplified by the persistent news about the loss of keys, hacking of systems and fraud in trading in crypto assets.”

Bitcoin futures investment products operate under the Commodity Futures Trading Commissions’ regulations, while mutual funds with exposure to Bitcoin are actively managed by regulated entities with a rich history of providing strong investor protections.

Taking into account these differences, Sood pointed out that “unless there is a change in the regulation of spot Bitcoin, there is a sound basis for BTC futures-based investments but not for spot-based investments.”

Notably, spot Bitcoin ETFs are available in various jurisdictions. In December, Fidelity Canada launched one such product called the Fidelity Advantage Bitcoin ETF. It trades on the Toronto Stock Exchange and is denominated both in Canadian and United States dollars.

Sood said that regulations in the U.S. may be a burden for investment product manufacturers but have “delivered substantial value and protections to U.S. investors over the years.” These protections, he said, have “stood the test of time over decades” and, as such, investors should opt for products regulated in the country if possible. 

While futures-based investment products may not be optimal for retail investors, Sood argued that some sophisticated products have been launched to offer investors the cryptocurrency exposure they may be looking for. He concluded:

“Investing in funds overseas may expose U.S. investors to undue unique risks and tax burdens.“

Bequant’s Reyes pointed out that cryptocurrency ETFs have less than $20 billion in assets under management across 50 products, which means we are “still in the early stages of the adoption” of these products.

Nevertheless, she sees the approval of a futures ETF and rejection of a spot ETF as “inconsistent,” as in other jurisdictions, spot ETFs are already being traded. Making matters worse, a futures product “primarily benefits institutional investors as it is too expensive for individual investors.

Grayscale Investments has notably fired back at the SEC for rejecting VanEck’s spot Bitcoin ETF application, issuing a letter arguing the SEC is wrong to reject such products after approving several Bitcoin futures ETFs.

CF Benchmarks CEO Sui Chung said that while futures products are regulated instruments with oversight from the CFTC, it “isn’t so clear cut for spot Bitcoin,” and the SEC has a challenge in balancing its enforcement mandate with what U.S. investors want.

However, Chung noted that Bitcoin futures ETFs have already “sparked an irreversible change” as they are available “to every single member of the investing public in the world’s deepest capital market.”

Markets, he said, haven’t experienced significant disruptions and “the sky hasn’t fallen in,” meaning that we “have passed the point of no return.” To Chung, firms who can offer investors ETFs that can help diversify and grow their portfolios “will be the winners.”

Making crypto more accessible

A Bitcoin spot ETF could make cryptocurrencies more accessible but to the above experts, the crypto ETF is about more than a product with physical exposure — it’s about making cryptocurrency exposure more accessible.

To Reyes, futures ETFs trading in the U.S. are a “trial run in eventually approving a spot ETF.” Such an ETF, she concluded, would be greatly beneficial:

“A spot Bitcoin ETF would fuel mainstream retail adoption of Bitcoin further. Some investors prefer the ease of accessing the market this way rather than through dedicated crypto exchanges.”

Reyes welcomed regulation, noting that the more regulated fiat-to-crypto on-ramps there are the better, as these platforms can help signal regulatory concerns are easing, further driving up demand for cryptocurrencies.

Chung said that cryptocurrency investment products can lead to mass adoption by ensuring that investors deal with less friction when entering the market, as it may be easier to buy an ETP via an existing brokerage account than to open an account at a cryptocurrency trading platform:

“We don’t want to be dogmatic about how people invest and learn about crypto and its possibilities, our job is simply to open up as many avenues as possible and drive adoption.”

While it isn’t clear when the SEC will approve a Bitcoin spot ETF or whether existing solutions are enough for more conservative investors to make a move, new investment products are making it easier for investors to gain exposure to the space.

Over time, the trend should continue and new products will launch, allowing cryptocurrencies to fully develop in the market as a new asset class that could help hedge against inflation or economic downturns.

WisdomTree amends Bitcoin ETF application, naming US Bank as custodian

U.S. Bank launched crypto custody services for institutional investors in October as part of a partnership with New York Digital Investment Group.

New York-based asset manager WisdomTree has amended its filing for a Bitcoin exchange-traded fund with the Securities and Exchange Commission to name U.S. Bank as its custodian. 

In a Wednesday filing, WisdomTree listed U.S. Bank National Association as the custodian for shares of its Bitcoin (BTC) trust. The filing is an amendment to its March 11 registration for a spot Bitcoin exchange-traded fund, or ETF, submitted to the SEC prior to U.S. Bank offering crypto custody services for institutional investors.

On Dec. 2, the SEC rejected a proposed rule change from the Cboe BZX Exchange to list and trade shares of WisdomTree’s Bitcoin Trust. It’s unclear if the recent amendment is aimed at resetting the clock on a new spot Bitcoin ETF application, given WisdomTree waited 265 days between its initial filing and the SEC rejection. A separate ETF application for WisdomTree’s Ethereum Trust submitted to the SEC in May is still under review.

Related: US is ‘unquestionably’ behind the curve on crypto ETFs, says Brian Brooks

With more than $76 billion in assets under management, WisdomTree has also launched four cryptocurrency indices in the United States and Europe to provide diversified portfolio exposure to investors. In addition, the company already has an exchange-traded product with exposure to a basket of cryptocurrencies on Euronext exchanges in Paris and Amsterdam.

Regulators in the United States have yet to approve a cryptocurrency exchange-traded fund. However, the SEC gave the green light to products linked to crypto futures, including BTC futures ETFs from investment managers ProShares and Valkyrie. Other U.S. firms including Fidelity have successfully applied with Canadian regulators for ETFs with direct exposure to crypto.

MicroStrategy purchases $82M in Bitcoin, now holds 122,478 coins

MicroStrategy’s holdings are valued at more than $5.9 billion, representing more than $2.2 billion in gains since its initial purchase in August 2020.

Business intelligence firm MicroStrategy has added 1,434 Bitcoin to its coffers after purchasing the crypto asset at an average price of $57,477.

According to a Thursday filing with the Securities and Exchange Commission, MicroStrategy purchased 1,434 Bitcoin (BTC) between Nov. 29 and Dec. 8 for roughly $82.4 million, making its total holdings 122,478 BTC. With the recent buy, MicroStrategy’s holdings are valued at more than $5.9 billion, representing more than $2.2 billion in gains.

Since making its initial $250-million Bitcoin investment in August 2020, MicroStrategy has gone on to purchase billions of dollars in Bitcoin in separate buys using the company’s cash on hand in addition to sales of convertible senior notes in private offerings to institutional buyers. Though there are cases in which the business intelligence firm bought the dip, some buys followed the price surges in early 2021 when the BTC price was more than $50,000.

Related: MicroStrategy pledges to buy more BTC despite paper loss on its holdings of $424.8M in Q2

According to data from Cointelegraph Markets Pro, the price of Bitcoin is $48,684 at the time of publication, having fallen more than 25% in the last 30 days. The crypto asset has been hovering near $50,000 since dipping to the $42,000s on Friday.

Alexandria Ocasio-Cortez says US lawmakers shouldn’t hold crypto to ‘remain impartial’

“I want to do my job as ethically and impartially as I can,” said AOC, who added that as a member of the House of Representatives’ Financial Services Committee she has chosen not to hold stocks or investments, including digital assets.

Democratic lawmaker Alexandria Ocasio-Cortez said Monday that she avoids any and all investments which could potentially represent a conflict of interest, including crypto — and believes her fellow lawmakers should do the same.

She explained that as a member of the House of Representatives’ Financial Services Committee, she felt it was inappropriate for her to hold Bitcoin (BTC) or other digital assets because lawmakers have access to “sensitive information and upcoming policy.”

“I do not believe members of Congress should hold/trade individual stock and I choose not to hold any so I can remain impartial about policy making,” said AOC. “I also extend that to digital assets/currencies […] I want to do my job as ethically and impartially as I can.”

Screenshot from AOC’s Instagram stories

AOC, a progressive lawmaker who has served in the United States government since 2019, has advocated for wealthy individuals to pay more in federal taxes, spoken out on sexism in Congress and called for the cancellation of student loan debt. She is also a member of a group of six House members known colloquially as ‘The Squad’. 

Though members of Congress are permitted to buy, sell and trade stocks and other investments while in office, they are also bound by the Stop Trading on Congressional Knowledge Act, or STOCK Act, passed in 2012, which requires them to report any purchase, sale or exchange over $1,000 within 30 to 45 days. However, many federal judges and lawmakers have reportedly flouted the law by not disclosing certain investments.

Related: Hundreds of thousands watch as AOC takes on Robinhood on Twitch

In the case of crypto in the hands of congressional members, it would seem to be an option to track investments using a public blockchain database, so both House and Senate leadership could avoid placing lawmakers in a position where they would be determining policy on crypto and blockchain if viewed as a conflict of interest. Senator Cynthia Lummis reported buying BTC worth between $50,001 and $100,000 in August. Even though Senator Lummis was openly pro-crypto before being sworn into office, she still served on the Senate Banking Committee.

Fidelity and Nexo are entering institutional lending market

The collaboration aims to give institutions access to digital assets with new innovative product designed specifically for their needs.

Fidelity Digital Assets — the crypto wing of Fidelity Investments — and crypto borrowing and exchange platform Nexo have announced a partnership to offer crypto custodial services, products and lending services for institutional investors. 

The two firms will create a comprehensive product line and legal infrastructure for institutional investors looking to get exposure to cryptocurrencies.

The partnership with Fidelity Digital Assets will allow Nexo to extend its asset portfolio and add a second custody level to its security architecture, according to an announcement. It also enables Fidelity Digital Assets institutional investors access to Nexo’s services as well as crypto prime brokerage.

Kalin Metodiev, co-founder and managing partner at Nexo, commented on the development saying:

“Working with Fidelity Digital Assets is the latest milestone in our quest to offer a complete institutional platform and to onboard traditional finance companies into the digital asset ecosystem. Our client base will now have full use of our industry-leading credit and trading products with reliance on Fidelity Digital Assets’ bespoke custody and security solutions.”

Related: Institutional investors bought the dip as China FUD broke

Christopher Tyrer, head of Fidelity Digital Assets in Europe, said that the firm has seen significant growth in institutional investor interest on the continent, and has expanded its partnerships in order to meet that demand.

Fidelity Investments has been ambitious in its plans for the institutional cryptocurrency market, making a number of strategic hires in the space. The company appears to be taking a more holistic approach to cryptocurrency, as the asset manager seeks to provide more institutional access points. 

Nasdaq Stockholm lists Bitcoin and Ether exchange-traded notes

The number of crypto-based exchange-traded products in Europe continues to expand as 2022 draws nearer.

Nasdaq Stockholm has announced that 21Shares has listed its first two physically backed exchange-traded notes (ETN) on the Swedish trading platform. 

The two instruments listed, with Bitcoin (BTC) and Ether (ETH) as underlying assets, represent a new segment for ETNs — a type of unsecured debt security that tracks an underlying index of equities and trades on a major exchange. 

According to the announcement, the new ETNs will provide investors access to investment opportunities in cryptocurrencies such as Bitcoin and Ether. 

Helena Wedin, European head of exchange-traded products at Nasdaq, said that exchange-traded notes allow one to invest in non-traditional assets while maintaining the transparency of a regulated market. She added, “We are happy to launch this new segment at Nasdaq Stockholm with 21Shares as the first issuer.” 

According to the press release, most traditional banks and brokers allow investors to trade all ETNs listed on Nasdaq Stockholm. This is a first that opens up new possibilities to investors interested in investing in cryptocurrencies but who are uncomfortable doing so on unregulated exchanges.

Related: ETN vs. ETF: Which Is the Investor’s Dream?

The cryptocurrency market has experienced a steep rise in valuation throughout the previous year. Despite some recent price dips, interest in cryptocurrencies continues to be high.

One reason for this sustained interest may be the possibility of increased institutional investment in the market. As institutional investment in cryptocurrencies increases, we’ll likely see more products such as ETNs being listed on regulated exchanges. As reported by Cointelegraph in September, VanEck introduced Solana (SOL) and Polkadot (DOT) ETNs on Deutsche Boerse’s Xetra.