DeFi Shows Impressive Recovery after the Recent Flash Crash
The cryptocurrency market has once again demonstrated its volatile nature. The market, which has been moving higher since the start of August, has encountered relatively little serious resistance along the way. However, most cryptos' gains were flushed away by half Tuesday, as prices sank immediately throughout the New York session.
The Crash was Due
The nascent cryptocurrency industry is well known for its extreme volatility. Despite the fact that the markets have a market capitalization of billions, the volatility persists. Despite their huge market capitalization, coins like Bitcoin and Ethereum see over 10% dips and increases within a typical trading session.
In the crypto world, flash crashes are common. It happens every now and again, and it has nothing to do with rationality. To date, the market has experienced many flash collapses. The majority of them have made spectacular recoveries, with the purchasers bringing the prices back up. The present downturn appears to be no different.
From the third week of July, the BTC market, for example, had been on a tremendous uptrend. And there had never been a moment when the price had decreased considerably. Despite the presence of significant supply levels along the route, peak drawdowns were no more than five percent in a day. As a result, it was only natural for prices to fall, breaching the overvalued regressing uptrend.
Decentralized Finance Sinks the Deepest
After a recent nosedive, the crypto market has come down to its recent support levels. If we look at the percent declines in different sectors, we see a lot of variation. Scaling solutions, for example, have attempted to recover quickly after the crash, but the thriving defi space has taken a significant blow as the immediate recovery has been sluggish.
The defi sector, which includes projects such as Aave (AAVE), Chainlink (LINK), Uniswap (UNI), PancakeSwap (CAKE), has seen a steeper drop than other major sectors. The percentage drawdown, for sure, is lower when compared to low-market-cap cryptos, but that isn't the case when compared to the other compelling crypto sectors.
Total Locked Value Recovers Quicker than Expected
Regardless of market conditions, the Total Locked Value (TVL) of DeFi, as illustrated by DeFi Pulse, has always been on the rise. The value has been on the upswing since the start of September, after ranging between $80 billion to $90 billion the previous month. As the value was neatly approaching the $100 billion mark for the very first time, the recent crash brought the value down to $76.276 billion. But interestingly, the TVL has rebounded back to almost $89 billion in the past couple of days. Leading to a fall, this rapid rise clearly demonstrates the presence of bulls in the decentralized finance space.
DeFi Tokens Moving in Sync
The defi tokens have been on a massive bull market since inception. Being relatively new to the crypto space, these tokens typically have higher volatility. Surprisingly, most defi tokens move in sync irrespective of the market condition. Be it a sudden rise, drop, or an extended consolidation, these tokens have usually had a high correlation coefficient.
In the shorter timeframe, the Aave (AAVE) market has been in a strong uptrend. The break above the resistance at $337 took the price to another push to the north, putting a high up to $430. But ever since the high was formed, the market went into a consolidation, ranging between $350 and $420.
As the market was gaining momentum to the upside within the range, the sellers did not let the buyers take over the resistance level and crashed the market down to the S&R level. The market is currently attempting to rise back up, taking support from the S&R level, as indicated.
Aave Price Chart on the 240-minutes Timeframe | Source: AAVE/USDT
The CAKE market has to be the best performer relative to other DeFi cryptos. While other tokens were consolidating after the breach above the S&R, CAKE was continuing to head higher and higher.
The current downfall has brought the prices back to the S&amp;R level, but it is expected to shoot back up considering the strength the buyers hold in this area.
PancakeSwap Price Chart on the 240-minutes Timeframe | CAKE/USDT
The Uniswap market is simply a replica of Aave, with different price levels. After breaking above the Support & Resistance (S&R) at $23, the market rallied all the way to $30 without facing any major hurdles.
Like AAVE, the UNI market too went into a consolidation after setting the above-mentioned high. As of writing, it is trading at the S&R level, where the buyers seem to be arriving quite aggressively.
Uniswap Price Chart on the 240-minutes Timeframe | Source: UNI/USDT
The DeFi Sector to Stay for the Long Haul
The entrance of DeFi to the crypto industry has been like a catalyst to keep the entire ecosystem afloat, as the traditional financial products are being revolutionized by a decentralized approach to managing funds. Despite a few setbacks along the road, the decentralized sector has always tried to maintain its grounds, indicating that people continue to believe in it. Any financial product will have flaws, but the objective is to keep the broader vision in mind. The decentralized financial market, too, must be viewed with the same vision, rather than being distracted by the short-term trends.
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