After Ethereum (ETH) had reached new record highs for this year due to a booming DeFi sector and increasing dynamics in the broader crypto market, the last days since Wednesday, September 2nd, saw a massive sellout. ETH crashed further on Saturday, September 5th, as it moved further away from the important $400 mark. Many DeFi tokens that take advantage of the ETH network also crashed. Has the DeFi bubble burst?
The crypto sector has experienced a great period overall, with the main cryptocurrencies, Bitcoin and Ethereum, reaching new all-time highs recently. However, now that is no longer the case, as Ethereum crashed on September 5th.
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Many DeFi tokens with strong correction
In recent weeks, Yield Farming has become very popular, with DeFi protocols such as Aave, Yearn Finance, Compound, and SushiSwap fueling the wave. As a result, the prices of many DeFi tokens rose to historic highs, although experts such as Ethereum co-founder Vitalik Buterin warned that DeFi carries high risks that he personally prefers to avoid.
The recent market withdrawal of Bitcoin and Ethereum has also left its mark on DeFi. The tokens of Yearn Finance, YFI, which have been on the rise in recent weeks, have fallen by about 25% within 24 hours from Friday, September 4th, to Saturday, September 5th. At the time of writing, the value of the coin is just under $22,400. That represents a 44% devaluation from the high of almost $40,000.
Perhaps the most affected token is SushiSwap (SUSHI), which lost 69% on Saturday, September 5th. The coin’s correction was exacerbated by the revelation that project manager Nomi had sold all his tokens.
Was Ethereum overdue for a correction?
Unfortunately, Ethereum (ETH) is one of the larger cryptocurrencies with double-digit losses. At the time of writing, the Ethereum exchange rate has fallen by a full 10% in the last 24 hours and is now trading at around $340. Calculated over the last 5 days, ETH even had to cope with a loss of 23%.
However, analysts noted that ETH showed signs of “exhaustion” and therefore the correction was to be expected. Santiment pointed out several important on-chain indicators which indicated that Ethereum was heading for a correction.
First, Santiment analysts noted that there was a significant decline in daily active addresses and shrinking network growth. Second, Ethereum’s exchange wallets have climbed to a 6-month high, indicating that ETH is ready for a correction.
From today’s perspective, it is difficult to say how far Ethereum will fall before the final low is reached. Currently, however, it looks as if most of this has already been overcome. In view of the increasing correlation with Bitcoin, however, it can be expected that ETH will continue to follow the dynamics of the largest cryptocurrency. Likewise, the initial question, whether the DeFi bubble has already burst, cannot be answered conclusively.
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