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Compound - Issue #65
In this newsletter, we are profiling Compound [COMP]. In previous newsletters, we have profiled Bitcoin, Cardano, Stablecoins, Uniswap, and many others. Access all our newsletters in our archives at madcapx.substack.com.
The Short of It
Compound is ranked #94 on CoinMarketCap with a market cap under $800 million; last year, the market cap had a high of $4.3 billion. Is COMP an excellent investment opportunity again, or is it better to move on to other crypto assets?
Compound was launched in 2017 by Robert Leshner and Geoffrey Hayes. Both worked in high-profile roles at the delivery service, Postmates, before moving over full-time to the blockchain space. Compound acts as a DeFi platform to earn interest (via their algorithmic, autonomous interest-rate protocol) on their cryptocurrencies and allows borrowers to take out secured loans. Compound has grown to become one of the biggest DeFi projects in the cryptocurrency space.
The token in the Compound ecosystem is COMP, which exists on the Ethereum blockchain, but is also available on the Binance Smart Chain, Solana, Avalanche, and Sora blockchains. It is used as their governance token to control DeFi parameters. COMP token holders can vote on new assets to be added or to change asset-specific requirements, such as required collateralization margins. Total supply is capped at only ten million, with a four-year vesting schedule. The rate at which COMP is emitted can vary over time as it is subject to community governance. The system runs completely on smart contracts, which mint cTokens when Ethereum and ERC20 assets are deposited and allow Compound users to redeem their stake using their cTokens.
Compound allows individuals to supply tokens to earn yield while the people borrowing provide other assets that are used as collateral. To ensure the borrowing and lending are stable, the system relies on over-collateralization. If the collateral falls below a minimum set level, it will be sold to liquidators at a 5% discount, paying down some of the loan and returning the remainder to an acceptable collateralization level. Borrowing and lending rates decrease when an asset supply increases and increase when demand for borrowing a certain asset increases. All assets put into the protocol get stored in the smart contracts with cTokens (like cBAT, cETH, cREP, etc…) given in return, whose values appreciate over time to match the compounding interest effect. These cTokens can then be swapped back to their original asset when withdrawn from the system.
The assets currently supported by the Compound network are AAVE, BAT, COMP, DAI, ETH, FEI, LINK, MKR, REP, SAI, SUSHI, USDP, USDT, WBTC, YFI, and ZRX. Price lookups are performed via utilizing Chainlink and Uniswap.
The main competition comes from other DeFi systems like Aave and centralized platforms like Crypto.com. To compare earning possibilities on the various DeFi platforms, check out https://loanscan.io/ to see where you can get your best returns. One of the issues you will come across, as with all Ethereum-based ecosystems, is dealing with the high ETH gas fees. DeFi, still being in its infancy, has many hoops and hurdles for the newbie to learn and navigate. As things move forward, if Compound can figure out how to simplify its usage, it will continue to grow and remain at the head of the pack.
COMP/BTC one week chart going back to June 2020 puts COMP into a bearish trend against BTC. From the last peak in May 2021 COMP is down 82% hitting an all-time low of 0.00290 satoshi few weeks ago. The current resistance trend line that has been pushing downward since that peak is very close to today’s price. Watch to see if that resistance breaks very soon. At the time of writing it is at 0.00303 and the resistance is at 0.00310.
The following chart with COMP/USD is somewhat similar to the BTC chart as COMP is almost touching the resistance line. The all-time low on this chart was back in November 2020. From there it started a bull run that went up 1081%. It has lost 88% from that high reached May 2021. Will COMP continue down still to hit a new all-time low under $78.52 or will the crypto market turn around pushing COMP with it?
I am looking for a heavy long setup soon when there is some confirmations. Yet I am still looking for another downswing! Hoping to see a shortfall of the last wave. — comment and chart below from TradingView user: OatSuk | posted Feb.14,2022
For the COMP bulls out there, there definitely are some saying to get ready for that massive pump. Though be careful if the overall crypto market continues in a downward move.
The Other Trend Lines
It is now over 100 days since Bitcoin hit its all-time high of $69,000. Since then BTC is down 45% and continues to show weakness. In this chart below, BTC/USD is on the monthly chart going all the way back to 2013. The overall bullish trend continues even though in the short term there is plenty of fear. The bottom of the trend is approximately at $23,000 with the mid-point at $94,000 and the top resistance line is way up at $384,000.
The Mayer Multiple is at 0.76, with the average since the creation of Bitcoin being 1.42. 87% of the time, we have been above today’s value.
The Mayer Multiple was created by Trace Mayer as a way to analyse the price of Bitcoin in a historical context. It does NOT tell whether to buy, sell or hold. The Mayer Multiple is the multiple of the current Bitcoin price over the 200-day moving average.
This portfolio section gives you an idea of what sort of return you can get when investing in crypto assets.
BTC/USD FUND is up 247% since October 1st, 2020. Since this is a long-term holding, it is best kept in cold wallet storage or a safe custody solution. We continue to see a long-term hold position as our best stable alternative. This past week bitcoin has been ranging between $37,348 and $44,751 USD in value.
FUND 3 started on November 16, 2020, with $1000 USD in value and was invested into BTC, LTC, ETH, and ADA. The total amount of BTC value from the four coins has had a gain of 72% since the start. The USD fund value is up 287% since the start. We will hold these positions to see how well it does against our BTC-only portfolio. LTC is down -33% against BTC. ETH is up 153% against BTC since the start. ADA has a gain of 296% against BTC and 786% to USD.
BLWX Fund started on February 22, 2021. They all are assets we have profiled in the last few months, and we are interested in how they will perform in 2021 against BTC. BAT has gained 80% against BTC since the start; LINK is down -33%, WAVES is up 25%, XMR is down -3%. Overall, against BTC, the fund is up 17% and down -19% against USD.
Overall, Bitcoin should be your first choice as an investment in crypto, though many digital assets can give you amazing gains if you manage your risk. As a long-term investor, we see it as our largest portfolio investment. If you are a day trader, there are many great assets to put on your watch list. Look through our previous newsletters to find some.
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Madbyte does have its own token called MADX on the Fantom and Ethereum networks and under symbol Madbyte on the Waves network. The tokens are interchangeable on Madcapx.com.
Disclaimer: Nothing in this newsletter is intended to serve as financial advice. Therefore, do your own research and due diligence before applying any of the techniques highlighted in this post. Any risks or trades based on this newsletter are committed at your own risk.