Compound (COMP) one of the primary DeFi tokens that sparked the start of the crypto market’s hottest trend in years, is suddenly booming once again. The altcoin token has sharply risen by 35% intraday, as part of an ongoing over 90% climb so far in August.
But what’s driving the sudden resurgence in the DeFi token, and will gains in the cryptocurrency continue to compound?
Yield Farming, And The Unstoppable Decentralized Finance Trend
Compound’s launch on Coinbase in late June set the crypto market afire with a new buzzword: yield farming.
The asset allowed crypto holders to lend out their tokens in return for an APY. The potential profitability in lending sent the asset’s valuation into the stratosphere. But soon, a great rotation of capital took hold across the crypto market, prompting investors to seek out the next hot new DeFi superstar, and the altcoin corrected.
Analysts warned of this behavior, and it resulted in some traders getting burned when several projects crashed from their unstoppable surges. Still, the decentralized finance mini-bubble has yet to fully burst, and it may have prompted capital to rotate back into Compound where the trend first began.
COMPUSD Daily Price Chart - 35% Intraday ROI | Source: TradingView
Compound Continues To Provide Massive Crypto Returns, Over 35% Intraday
Over the last 24 hours, Compound surged by over 35% from under $200 a token to over $265 per COMP. Buzz surrounding a new YAM token may be causing the pump, however, it also could be from profit-taking in other projects perhaps making its way back into the DeFi token.
But this is crypto – a speculative asset class – and the recent DeFi and Uniswap boom by the day more closely resembles a bubble. Investors are irrational, money is being made around every turn, but it could all come crashing down if and when the bandwagon begins to teeter off course.
COMPUSD Daily Price Chart - 96% Month-To-Date ROI | Source: TradingView
The difference between decentralized finance and past crypto bubbles is the fact that DeFi is a sustainable trend offering the market real value and an alternative to traditional finance. But as crypto investors tend to do, expectations far outweigh what’s realistic, and eventually, valuations receive a reality check.
When it comes to Compound, however, technicals suggest the altcoin’s rally has a lot more left to go. The Average Directional Index, a popular trend strength measuring tool, indicates that the bull trend hasn’t truly even begun.
COMPUSD Daily Price Chart - Average Directional Index and DMI | Source: TradingView
According to the indicator, trends don’t truly begin to pick up strength until the indicator rises to a reading above 20. Currently, Compound is just below it at 18, but ready to push higher. A bullish crossover of the Directional Movement Index accompanying the ADX also points to further bullish momentum in the DeFi token.
With so much going for it, the cryptocurrency looks to be a diamond in the rough of a sea of DeFi projects vying for crypto capital.
