- Scott Melker, known as “The Wolf of All Streets,” is an influential crypto trader and investor.
- Melker explains yield farming in decentralized finance and shares 4 of his favorite tokens.
- He also shared his thoughts on the current state of the crypto market and what investors should do.
As bitcoin briefly dipped below $30,000 on Tuesday for the first time since January, even the most bullish crypto traders and investors had to reckon with the possibility of another multi-year bear market.
Amid a new wave of mining crackdowns from China, crypto products have seen a third week of consecutive outflows totaling $79 million in what is the longest bear run since February 2018, according to CoinShares.
Guggenheim’s chief investment officer Scott Minerd, who in February said bitcoin could eventually reach $600,000, also warned about the near-term bearish sentiment in a Tuesday tweet.
“Look for more declines in crypto as Bitcoin breaks through support. Next likely support level is $20,000,” he wrote.
Scott Melker, an influential crypto trader and investor known as “The Wolf of All Streets,” still views the recent bouts of sell-offs as a corrective price action that’s likely to resolve to the upside in the coming months.
“Whenever bitcoin price drops, we see the same recycled narrative repeated. Whether it’s a China ban or India ban, something about the environment, criminals using bitcoin, it’s the same stories over and over again,” Melker said in an interview. “But also, it can’t go unnoticed that the price dropped from $64,000 to $30,000, which is a significant drop, so I would say that it’s a good time to be somewhat wary.”
What is DeFi yield farming?
Indeed, in a sign of the sentiment shift, even billionaire investor Mark Cuban got hit by losses in Titan, a DeFi token that crashed to $0 from $65 last Thursday as whale accounts allegedly unloaded their shares and triggered panic selling.
Cuban, who mentioned Titan in a recent blog post titled “The Brilliance of Yield Farming, Liquidity Providing and Valuing Crypto Projects,” said the episode did not change his conviction in the decentralized finance space. Instead, he blamed himself for not doing his homework.
So what is really the space that Cuban thinks is so brilliant?
At its most basic level, DeFi yield farming, which is also called liquidity mining, is simply a way to lock up cryptocurrencies and get rewards in the form of tokens for doing so. These reward tokens can then be deposited in other liquidity pools to earn more rewards there, which means it can evolve into a complex strategy pretty quickly, Melker said.
He recalled that yield farming became all the rage when Compound, a DeFi lending protocol that allows users to earn double-digit interest on their crypto deposits, started to attract a large number of users to its platform last June. From there, DeFi platforms boomed in what the industry calls the “DeFi summer.”
Despite the craze over yield farming, many are saying the insane returns are coming to an end. Cuban’s experience with the Iron Finance project also serves as a reminder of just how many unforeseen risks could derail a project.
“These are smart contracts so there’s going to be bugs in the contract potentially or you could have a dishonest person on the team,” Melker said. “You are at the risk obviously in an unregulated market either for programming or a bad actor.”
Stick to the large tokens
Because smaller and less well-known tokens are often more vulnerable to frauds, hacks, and scams in the DeFi market, Melker prefers to stick with larger tokens that are more liquid and established.
Specifically, he likes Uniswap (UNI), Compound (COMP), MakerDao (MKR), and AAVE (AAVE).
“I’ve never gone very deep down the [yield farming] rabbit hole myself because it’s so time-consuming and complex, and really requires a level of understanding that I think very few people have,” he said. “But these are all tokens that I’ve either traded or invested in at some point and find very very interesting.”
For the average investor though, Melker recommends that they focus on bitcoin first and then ether before going down the long tail risk and acquiring DeFi tokens.
“These larger platforms are probably the next logical step if you want to gain exposure,” he said, “but you don’t want to go actively yield farm yourself, which for most people is a losing proposition.”