Ethereum Trades Lower After Succumbing to Sell Pressure
Ethereum (ETH) is currently trading 25.53% lower compared to how it was at the turn of the month. And this happened after it succumbs to a bearish sell pressure during the past week.
ETH, or the world’s second-largest cryptocurrency by market cap, recently trades at $342 following a bounce from the $316 level of support over the weekend.
Aside from that, the $316 level became mapped out after a support/resistance flip by the end of July. Eventually, this paved the way for a period of bullish continuation, seeing Ethereum hit as high as $490.
For the short term, Ethereum is showing hints of weakness as holding over $316 would be key. Also, the four-hour 50 EMA crossed the 200 EMA to the downside for the first time since June.
Then, the velocity and efficiency of the latest break down in price might be due to the lack of long-term belief in DeFi projects such as Sushi and Yearn Finance.
During the weekend, Sushi – a yield farming protocol – plummeted by 80% as the lead developer controversially liquidated his Sushi tokens for $25 million. And this occurred before transferring ownership of the project to FTX CEO Sam Bankman-Fried.
The token has reached an all-time high of $11 on September 1. And now, it is worth $2.73 after bouncing from a grueling low of $1.21. This has become a clear demonstration of the mounting sector’s fragility, mostly built on Ethereum’s blockchain.
When more projects start to go on Sushi or Yam Finance, Ethereum’s brands will get hurt among investors who have lost capital in DeFi.
$366 is the key level of resistance to watch out for if Ethereum can rebound in the next several days. Also, a potential target of $284 might be in the cards of $316 breaks.
Glassnode’s research has taken a deep dive into the economics and value of the Sushi token. And it showed that it might be worth far less than the current price. The research showed after the token’s price took a huge 70% dive during the past week to $2.36.
Liesl Eichholz, a Glassnode analyst, broke down the tokenomics of SushiSwap’s native Sushi token. In the research, protocol governance’s value must not be understated, but it is hard to quantify. And this signals that such yield farming incentives are massively driven by hype.
Moreover, the inflation rate is the number one issue that they need to address when assessing Sushi’s valuation. Eichholz added that newly minted doled out as rewards will dilute the holdings of existing investors.
The design incorporated inflation into the system to encourage people to provide liquidity enthusiastically.
He said, “But investors should be aware: anyone holding Sushi without providing liquidity will be diluted.”
The 0.05% buyback reward generated from trading volumes is for distributing newly minted tokens back to existing holders. Thus, a specific amount of daily trading volume needs to stay to maintain a given price.
After Sushi’s launch, its price hit an all-time high of more than $11. However, it has been going back to earth ever since and is currently nearly 80% off that peak at $2.36.
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