AAVE has been performing remarkably well in the market recently, showing a strong upward trend with a 32.08% increase in the past month, surpassing many other digital tokens. This positive momentum has also been evident on a weekly basis, with a gain of 16.42%.
However, despite these impressive gains, new data indicates that the rally of AAVE might face some obstacles, potentially leading to a significant decline in its trading value.
Possible Temporary Nature of AAVE’s Recent Market Surge
Currently trading at $145.80, AAVE is only $14.21 away from its previous high of $160.01. An analysis of the market dynamics reveals that AAVE’s recent surge was triggered by a rebound from the midline of a major support level at $138.16.
Nevertheless, AAVE has encountered resistance at $146.69 in the four-hour timeframe, accompanied by high selling pressure that could drive the price downwards, potentially revisiting or dropping below the support range of $140.06 to $136.12.
If the support level is breached, AAVE’s price might experience further decline, potentially dropping to $123.18, particularly under increased selling pressure.
Potential Negative Impact of Rising Supply on AAVE
Data from CryptoQuant shows an increase in exchange supply within the last 24 hours, indicating that 2.5 million AAVE tokens are now available across various cryptocurrency exchanges.
The rise in exchange supply implies that market participants are placing their AAVE assets for sale, suggesting a looming surplus.
This spike in supply coincides with a positive trend in Exchange Netflow, indicating a likelihood of investors transferring their AAVE to exchanges for selling or swapping with other tokens, resulting in a demand crunch.
This surge in supply and exchange flows has led to substantial long liquidations, with Coinglass reporting $260.55k worth of AAVE long positions being closed forcibly in the last 24 hours due to unfavorable market conditions.
Market Challenges for Bullish Sentiments
The Bollinger Bands, used to gauge market volatility and identify overbought or oversold conditions, suggest that AAVE has entered the overbought territory and is anticipated to trend downwards in search of recovery.
Interpreting the bands, crossing the upper band (red line) indicates an overbought situation, crossing the lower band (green line) reflects oversold conditions, while the middle band (blue line) signifies neutrality.
Additionally, the bearish sentiment is evident in the decrease in open interest, which monitors the volume of unresolved derivative transactions.
AAVE’s open interest has dwindled from $214.71 million to $164.56 million since September 11, signaling a reduction in liquidity inflow to the market and a probable further decline in asset prices, possibly retesting $140.06 or lower.