Flourishing DeFi May Not Halt Ethereum’s Price Decline
The use of Ethereum has risen explosively within the previous couple of years. The ICO bubble at the end of 2017 and most of 2018 was the major root of the blockchain’s utility. This also perpetuated an unsustainable uptrend regarding the price action of Ethereum. There was a shift towards the end of 2018 as regulatory measures hit ICOs worldwide, thereby largely halting the trend.
However, as decentralized finance (DeFi) which allows users to offer and receive peer-to-peer loans using their cryptocurrency as collateral, started growing rapidly last year, more people continued to use ETH, with massive on-chain activity. Likewise, stablecoins are being issued on the Ethereum blockchain thereby heightening this trend.
These trends, as well as the forthcoming launch of the ETH 2.0 testnet, have strengthened fundamental factors influencing Ethereum. Hence, it appears that they are suggesting some intense technical strength for Ethereum in the coming months.
Nonetheless, these fundamental factors may not be robust enough to halt Ethereum’s fall in the near-term because of the possible forthcoming move beneath a major ascending trendline.
Since 2019, a divergence between Ethereum’s utility and its price action has been observed. DeFi Pulse data revealed that an aggregate of $1.33 billion is locked within collateralized loans at the moment. The value of collateralized loans attained a lifetime high in February but declined after the liquidation of numerous collateralized positions due to the capitulatory market decline in March.
In recent times, Su Zhu of Three Arrows Capital expressed his thoughts regarding DeFi on Twitter, noting that it is capable of catalyzing the price action of Ethereum:
“Ppl commenting that DeFi is a less explosively bullish catalyst for ETH than ICOs are forgetting the fact that DeFi is an incrementally accretive and sustainable trend while ICOs were not.”
All of these are signs of solid fundamental strength but Ethereum remains in an uncertain position when we consider its technical outlook. According to an analyst, the asset’s chart shows that it is vulnerable to a move beneath a key trendline; hence, a break below it could lead to more downside moves.