Decentralized Finance (DeFi) began in 2021 by taking the cryptocurrency sector by storm and accelerating the bull market cycle as traders took advantage of ways to trade cryptocurrencies with ease and earn high returns from their massive stacks.
Ultimately, high fees on the Ethereum (ETH) network and a few sharp market sell-offs contributed to a decline in token prices and DeFi trades that started in late February, but that trend appears to have reversed over the past week as activity on decentralized exchanges are on the rise again.
As can be seen in the chart above, decentralized exchange volume (DEX) peaked in late February, followed by a downtrend in the first week of April, with the total volume traded on all DEXs dropping to $ 603 million on April 4.
The increase in user numbers in mid-March was due in part to the explosion in popularity of nonfungible tokens (NFTs), and the end of that frenzy is marked by a steep drop in user numbers between March 26 and March 27.
Bitcoin declines are fueling DEX activity
One possible explanation for the spike in activity on DEXs in recent weeks can be found by comparing the volume charts with the Bitcoin (BTC) price chart, indicating a possible correlation between a dip in the price of BTC and increased trading activity.
When the price of Bitcoin fell from April 6 to April 8, the DEX volume started to rise and peaked on April 7, just as the BTC price bottomed out and prepared to climb higher.
After the Bitcoin price peaked at $ 64,840 on April 14, it fell into a downtrend that continued until April 24 as the asset remains below $ 50,000.
DEX volume saw a significant increase from April 18, the same day Bitcoin experienced a 16% price drop from $ 60,900 to $ 50,500, and it has remained high ever since, indicating that traders may be moving from Bitcoin to altcoins as the best cryptocurrency . works its way through what traders hope will be a short correction phase.
As can be seen in the chart above, the daily DEX volume hit its highest level in weeks on April 22 when Bitcoin and the broader cryptocurrency market experienced a significant downturn that caused the total market cap to drop by more than $ 324 million.
With Bitcoin battling to regain the USD 50,000 support level and a majority of the altcoin market now at fire sale prices following the downturn of recent highs, decentralized exchange activity could indicate an impending altcoin season that has historically seen as Bitcoin looks for direction after a retraction of a new record ever.
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