After pulling Ethereum’s price towards $4300, will DeFi have the arguments to keep ETH from sinking? Ethereum’s price has fallen 55% compared to its mid-May ATH. In addition, the expiration of $1.5 billion worth of Ether options could push the cryptocurrency further into the abyss. Bearish scenarios even predict an Ethereum price below $1,700, or around February 2020 levels.
At the same time, the DeFi sector, which has always been the catalyst for Ethereum’s strong performance over the course of this year, has just fallen 35% from its highs. But, according to a report from Glassnode, long-term Ethereum holders are taking refuge in DeFi to mitigate the bear market through collateralization of their ETH tokens into borrowing ecosystems.
The crypto market crash has had a resounding effect on DeFi. Yet the sector was growing at an exponential rate over the course of this year with a pronounced rise in early and mid-May. Since that time, the sector has plunged widely in the stock market. While overall the drawdown is 35%, there are some tokens that are down over 60% from their ATH.
Looking at the table provided by Glassnode, you will see that Synthetix Network, Aave, SushiSwap and Maker Dao recorded drawdowns of over 60%. It’s not just in the value of tokens that the decentralized finance sector has seen a downward effect, the business that goes on in the ecosystem has also regressed. Glassnode wrote in its report: ‘Activity, which had been growing exponentially, has come to a halt, with participants remaining largely inactive during sideways movements. We may see brief bursts of activity during price volatility, but they quickly slow down when prices stabilize.
Short-term ETH Holders (coins that have not moved in less than 155 days) are currently seeing their unrealized gains evaporate as the net unrealized profit and loss indicator enters the capitulation zone. After recording losses of -25% for ethers bought at $2,200, the risk is that short-term investors will liquidate their positions especially as the indicator (STH-NUPL) falls slightly below zero. When the (STH-NUPL), the probability of investors selling their assets is very high. For Ether, what can change the game with these Short Term Holders is their belief in the future of Ethereum.
Long-term holders (>155 days) remain firmly in profit, holding paper gains equivalent to about 80% of the market cap. The LTH-NUPL remains flat as most long-term holders remain profitable, but if the market continues to decline, they will see their unrealized gains diminish.
When we look at Ethereum’s LTH-NUPL curve, it is just above 1 in the (Euphoria-Greed) zone. The probability of liquidation in this zone is very low but given what happened in 2018, we are still cautious.
As a reminder, in 2018, despite the fact that the LTH-NUPL indicator was in the zone of (Euphoria-Greed) after a rally of 20 127% of the price of Ether, this had not prevented Ethereum from falling by more than 95%. What changes this year compared to 2018: the DeFi did not exist. Glassnode wrote: Unlike previous periods of capitulation, many of these long-term holders can now deploy their assets in DeFi. ETH is widely deposited in lending protocols like Aave and Compound, where we currently see over $4 billion in deposits outstanding in Aave and Compound.
With these crypto-currencies in the DeFi ecosystem, investors can use their ETHs to borrow stablecoins for which they get an annual return and no risk. In addition, they will receive tokens from these cryptocurrencies that are often cited as the most promising cryptos in the industry.