Aave’s price temporarily dipped below $161 on September 30, after a 10% rally the day before caused it to rise nearly 25% within a 2-day period. A lot of the selling on September 30 was likely profit-taking. But it is also important to consider how much selling pressure there was and whether that sold amount was enough to overpower the ongoing buy pressure.
AAVE Profit-Taking Signals Need Context
Selling pressure and buying pressure are represented by negative and positive values, respectively, on the Network Profit/Loss meter. Positive values can occur even when selling pressure is greater than buying pressure, as the example of profit-taking illustrates. However, profit-taking is only supported by selling pressure if that selling pressure is larger than buying pressure.
There are 4 main things to consider when evaluating the example of profit-taking:
- It is possible that a token is transferred to a new address for reasons other than a sale, and thus that token may not have left the network.
- Profit-taking may occur for a variety of reasons (i.e. an individual may expect a price increase or decrease in the future, or may simply be taking a profit for no particular reason.)
- There are a variety of reasons why an individual may sell a token. The reason may not be an expectation of a future price increase.
- Individuals may hold a token for reasons unrelated to an expectation of price appreciation or depreciation.
Trade Volume: The main concern is whether sell orders outnumber buy orders.
Price Support: A brief move below a given price level is not the same as sustained trading below that level.
Buyer Support: Multiple buy orders at lower prices indicate demand more effectively than a quick, minor bounce in the price.
Trend Changes: A preponderance of the evidence from the above illustrates a change in the trend of the market more effectively than an articulation of a rationale for that change.
AAVE Support and Resistance Outlook
The subject of the analysis believes the price of AAVE could test support in the $145.10 area and could face resistance in the $178.71 area. Support and resistance levels are guides and may change.
An area may be defined as support if market participants are willing to buy in that area; the same is true for resistance. Support and resistance levels may change if the market participants stop acting that way.
Buybacks and Token Burn Expectations
Considering recent updates within the crypto space, Stani Kulechov is reportedly thinking about implementing a burn mechanism as part of Aavenomics 3.0. Just because something is being considered, does not mean it will be added to the framework.
Back in September 2020, the Aave improvement proposal suggested the introduction of a buyback mechanism giving the core team the right to spend up to 4 million USD to buyback AAVE tokens over a two year period. Just because this improvement proposal was created, does not mean the core team is currently purchasing AAVE tokens.
Conclusion
AAVE tokens are used to govern the lending protocol to make decisions to modify the protocol based on market conditions. While price action is monitored, so is the decision making and activity transpiring on the protocol. Higher demand for the protocol does not always cause the price to increase.
AAVE’s price action will be based on the selling pressure and the quality of the governance ideas. Buying pressure will help validate the recovery but by itself will not guarantee it.
Arslan Ali Butt
Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)
Arslan Ali Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics.
His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker.
His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.
