3 trends that are driving the growth of the crypto market

3 Trends That Are Driving Crypto Market Growth - Cryptocurrency Market 1024x640In a rapidly growing sector like cryptocurrency markets, it can be limiting to try to define the 3 main trends that drive liquidity and investor interest. However, this helps to understand how relatively new markets evolve and what the catalysts for the next big steps will be.

Stablecoin

The small swings around the price of the fiat currency a stablecoin is anchored to pave the way for arbitrage opportunities where investors can mint a stablecoin for $ 1 and sell it on the market for $ 1,0003, for example.

Multiplied by millions, this can generate a nice profit. The selling pressure will subsequently bring the stablecoin's value towards its set price. In the third quarter, the supply of USDC, the second largest stablecoin by market capitalization, grew much more than that of tether (USDT), the largest stablecoin, although arbitrage opportunities (measured by the standard deviation of stablecoin prices) were higher with USDT.

This suggests a growing demand for USDC from institutional investors and traders: USDC is managed by licensed companies based in the United States and has taken a more regulatory-friendly approach.

DeFi

Ethereum's market cap increased 60% in the third quarter of 2020, rising from $ 25 billion to $ 40,5 billion by the end of September. The market capitalization of the top 10 DeFi coins by total locked value saw an even greater increase in the quarter, growing more than 345% from $ 1,2 billion to $ 5,3 billion.

DeFi's market capitalization now accounts for around 12% of the total market value on the blockchain and has emerged as the driving narrative for the Ethereum ecosystem. Ethereum was born in 2014 with the aim of being the "computer of the world".

In the 2017 ICO boom, it has become the 'fundraising platform of the future'. Now, Ethereum's role in the evolution of decentralized finance is changing the narrative of the blockchain once again.

This could affect not only the interest levels of both retail and institutional investors; it could also influence technology considerations, especially at a time when the underlying technology is undergoing a profound transformation as the ecosystem migrates to Ethereum 2.0.

Crypto derivatives

Although the ether futures market is still a fraction of the bitcoin futures market, it is starting to show some recovery activity. Both daily transaction volume and open interest (OI) in ether futures set new records, reaching $ 14 billion on August 2 and $ 1,7 billion on August 15, respectively.

In September, they both returned to a high "new normal". This shows the strong growth of the Ethereum ecosystem and suggests a growing institutional acceptance of ether as an asset of investment and trading.

It also highlights the evolution of the cryptocurrency markets as a whole - a prerequisite for a mature market is a vibrant derivatives market. More diversity will lead to a healthier market overall.