An important aspect in maintaining investment returns is to understand when assets or sectors show signs of exhaustion and when to perform sector rotations.
This is especially important in the diversified cryptocurrency market, which can change direction in the blink of an eye and turn cryptocurrency millionaires into frustrated bag holders.
Most investors are already aware of the non-fungible token (NFT) industry that has been hot since July when its total sales reached six and seven figures. Total sales of OpenSea, the top NFT market, exceed $4 billion.
Figure 2: https://pbs.twimg.com/media/E-IGAp4XIBIcimv?format=jpg&name=small
Although the NFT craze is exciting, many new projects launched on various blockchain networks, and the recent decline in transaction volume may be a signal that investors are trying to change the game of blockchain and its technological aspects.
In the first quarter of 2021, the Decentralized Finance Protocol (DeFi) and its correlated tokens were the pinnacle of investors’ attention, but the industry cooled down in March when the NFT market experienced its first bull marketplace.
Now that the trend seems to be changing, the profits of NFT trading may return to the altcoin and DeFi markets. Here are five aspects that predict the shift from NFT to DeFi.
1. DeFi Market Cap Diversified Tokens Rally
DeFi Perp is an index token on the FTX cryptocurrency exchange, which includes 25 major DeFi-related cryptocurrencies. These cryptocurrencies include Maker (MKR), Polkadots, Solana, Curve DAO token (CRV), Uniswap and SushiSwap.
TradingView data shows that the price of DeFi Perp rose from a low of $5,331 on July 20, 2021, and then rose 138% to a daily high of $12,771 on September 2.
Figure 3: https://www.tradingview.com/chart/?symbol=FTX%3ADEFIPERP
The rebound price of DeFi Perp supports the resistance level up to $12,500, which became a fundamental level of finance between February and May 2021. It indicates that funds are returning to the DeFi ecosystem because NFT trading volume and price is falling day by day.
2. NFT Market Rates are slowing
Since rapidly rising prices of NFTs have always been the main feature of public concern, this is also a red flag for the falling demand for NFTs. As per Dune Analytics, the average reserve price hit a high of 1.02 ETH (ETH) on August 29 and then dropped to 0.5 ETH.
The fact that NFT sales are at a lower price or that various new projects are trading at a lower price indicates that the market may be saturated and that momentum is slowing down.
Figure 4: https://dune.xyz/queries/83579/166536
3. Increasing Number of Transactions on DeFi
Another sign of the continuous development of the DeFi ecosystem is that the diversity of DeFi customers has grown steadily over time, as shown by the aforementioned Dune Analytics survey results.
The constant entry of new customers into the DeFi platforms may indicate that its market is profitable and that investors are seeking to make a profit and generate returns, while newcomers in the market are attracted to less risky alternatives.
4. ETH Prices On The Rise
Data from Cointelegraph Markets Pro and TradingView show that the price of ETH has risen by 125% since it hit a low of $1,706 on July 20. The most recent price has risen by 23%, from $3,134 on August 30 to $4,029.
Before the high point of Sept 9, most of the top DeFi protocols resided on Ethereum. Top altcoins are one of the most important assets in the DeFi ecosystem and are widely used to set up and purchase other tokens.
Figure 5: Cointelegraph
5. DeFi TVL Sets A New Record
The last indicator is the total value locked (TVL) on all DeFi protocols, which indicates that sector rotation is being carried out to DeFi. On September 2, this figure hit a record high of $171.5 billion.
Figure 6: https://s3.cointelegraph.com/uploads/2021-09/ec033db9-a58b-41f0-98b3-aaa59e6ff98c.png
Although the NFT boom is not over yet, multiple data points indicate that the bullish momentum has been exhausted, and the recent surge in altcoin and DeFi prices indicate that a rotation is taking place.