Ethereum ETHUSD
Ethereum price (ETHUSD) is down by more than 1.58% as investors worry about the Decentralised Finance (DeFi) industry. The currency is trading at $343, which is significantly below this year’s high of $488.
Ethereum and its other digital currency peers have had a rough month. The currency is down by more than 21%, making September one of its worst months. Other currencies like Bitcoin and Ripple have also dropped significantly.
The biggest reasons for the decline are the overall strong dollar and the general weakness of the stock market this month.
But there is a new problem in the ETH industry. For one, the DeFi boom, which has led to a significant rally in Ethereum price this year has started to develop some problems. Indeed, the total value locked in the industry has fallen from an all-time high of $11.6 billion to the current $10.43 billion, according to data by DeFi Pulse.
For starters, the DeFi industry aims at creating financial products using the blockchain technology. While other blockchain protocols have are used in the industry, Ethereum is a major player. Indeed, 41 of all DeFi projects are created using its protocol. This includes the biggest projects such as Maker, Uniswap, Aave, and Yearn Finance that have a combined value of more than $4 billion.
Now, some analysts are warning about the likelihood of a DeFi burst. Some analysts have also compared these products to Initial Coin Offerings (ICOs) that lost millions of people’s funds.
If the DeFi bubble bursts, it will be a major drawback for Ethereum price and the overall network. That is because ETH proponents believe that the real value of the protocol is to help build such DeFi products. It will also happen at a time when the network is going through ETH 2.0 upgrade, which will make the network more reliable and faster.
The daily chart below shows that Ethereum price has been in a strong downward trend this month. And in recent days, it has formed a double bottom pattern at the $310 level. It has also failed to move above the $395 resistance level. Also, the price is slightly below the 100-day EMA and is above the 200-day EMA. Importantly, the 200-day EMA level is along the 50% Fibonacci retracement level.
For starters, a double bottom pattern happens when bears are uncomfortable pushing the price below a certain level. As such, it is usually a bullish signal. Therefore, in the near term, I suspect that the price may continue rising, and even possibly test the resistance at $395. In the longer-term however, I suspect that the price will retreat and test the 200-day EMA at about $290.
