The DeFi sector is struggling, while Bitcoin is experiencing a further increase.


The Bitcoin price has recently risen significantly, while at the same time the price of DeFi coins began to fall.
Both appear to be negatively correlated, and some speculate that BTC may withdraw capital.
DeFi projects have also lost money to Ethereum, although most are based on its network.

Both Bitcoin (BTC) and the DeFi sector grew side by side in 2020 after the collapse of the global economy in mid-March, but now both have started to move in the opposite direction. When the price of Bitcoin recently soared, the DeFi sector began to decline significantly, prompting some to speculate about a possible link between the two sectors.

DeFi projects in negative correlation with BTC

According to a table recently published on Twitter by the co-founder of the crypto data company Markets Science, Bitdealer, there could be a negative correlation between Bitcoin and numerous top DeFi tokens.

Correlations between $BTC, $ETH and DeFi

It is interesting to see how consistent the negative correlation between BTC and DeFi is.

The data are from the last 45 days since the launch of $UNI ₿itDealer (@Bitdealer_) October 31, 2020

The diagram covers a period of 45 days ending on November 1. Seven of 13 DeFi coins also showed a negative correlation with the second largest coin, Ethereum. This is quite interesting, considering that Ethereum still makes up the largest part of the DeFi sector.

In the last few days alone, Bitcoin and DeFi have moved in opposite directions. When the price of Bitcoin corrected from 13.8 to 13.27 US dollars, DeFi TVL was comfortably above 11 billion US dollars.

But as soon as the BTC rose towards a resistance of $14,000, DeFi fell to $8.33 billion. Earlier today, the price of Bitcoin fell again, while DeFi rose back to $11 billion and is currently at $10.95 billion.

Is Bitcoin to blame for the DeFi decline?

DeFi also experienced considerable struggles as the summer came to an end. Binance’s DEFI Composite Index, for example, plunged 64% from the end of August ($1,100) to the present ($400). A similar situation was seen in TokenSet’s DeFi Pulse Index, which fell by more than 50%, from $130 in mid-September to $61.55 at the time of writing this article.

Bitcoin’s rebound, on the other hand, came immediately after PayPal’s recent announcement that the company plans to add support for BTC and several other coins in the coming months. The negative correlation has led some to speculate that Bitcoin may be pulling capital from DeFi.

Tyler Reynolds, one of Google’s payment engineers, noted that up to $50 million of DeFi’s capital could be left over for Bitcoin, which weakened buyer pressure in the markets.

Overall, perhaps only $50 million from active DeFi trading is rotating.

It is insignificant to drive up the BTC price (which has risen more through traditional capital injections than through the rotation of ETH and DeFi), but may ruin DeFi’s liquidity – Tyler Reynolds (@tbr90) November 2, 2020

The DEXes also recorded a much lower volume in October than in September this year.


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