Ethereum slides further as billions of dollars drained from the DeFi ecosystem

With the total value locked (TVL) across the Ethereum network having dropped substantially recently, more sell-offs loom large on the horizon.

  • Ethreum’s 12-month losses have now surpassed those of Bitcoin’s, currently standing at -50%.
  • ETH’s total valuation has dipped to AU $185B with the altcoin’s market share also down to 14%.
  • Analysts believe that the altcoin could slip to AU $1,200 or as low as AU $600 in the near term.

The ongoing sell-off has resulted in Ethereum plunging below its all important AU $1,450 psychological threshold yesterday, albeit briefly. The altcoin is currently down -26% over the past week and is trading at AU $1,543.

ETH scaled as low as AU $1,400 recently, its lowest price levels in over 18 months. The currency has lost approximateky 80% of its value after having soared to its all time high of AU $7,000 last November. The decline coincides with the Federal Reserve’s decision to hike interest rates by 75 basis points, a move that has spurred the crypto as well as equities sector into a bear market.

As more quantitative easing (QE) measures may be on the horizon, analysts have pointed out that the Federal Reserve (alongside many other central banks) have barely even started with their inflation curbing efforts, with one pundit highlighting: “The Federal Reserve has barely started raising rates, and for the record, they haven’t sold anything on their balance sheets either. There is bound to be more downside coming.”

How to buy Ethereum

Ethereum’s future looks bleak

The last couple of days have seen investors and traders anxiously follow Ethereum’s price action, since a dip below AU $1,400 (US $1,000) could result in forced liquidations of massively leveraged bets. Also, two prominent crypto lending platforms — i.e. Babel Finance and Celsius Network — recently halted withdrawals citing current market volatility as a reason for the same.

Major crypto hedge fund Three Arrow Capital — that owned US $10B worth of assets as of May — failed to prove that it had enough collateral to cover for its soured bets. The firm now faces potential insolvency, a development that comes just a few weeks after the collapse of Terra, an algorithmic stablecoin project worth $40B during its heyday.

These changes have resulted in large amounts of capital exiting the Ethereum ecosystem, with the total value locked (TVL) within the network having dwindled by over US $120B over the past 45 days. Some analysts believe the ongoing downturn may be good for ETH in the long run, adding:

“The deleveraging event that is underway is observably painful, and is akin to a form of mini-financial crisis. However, with this pain comes the opportunity to flush excessive out leverage, and allow for a healthier rebuild on the other side.”

Where will Ethereum finally bottom out?

The Federal Reserve’s increasingly stringent monetary policies as well as the DeFi market’s current downturn suggests that Ethereum may continue to remain in a bear market for the foreseeable future. Pundits believe that in order for any trend reversal to come to fruition, Ethereum must regain its US $1,000 psychological support. Failure to do so could result in the token slipping to AU $1,200 (US $830).

The currency could also fall all the way down to AU $600 (US $420) if its corrections mirror the ones that were recorded back in 2018, a time when ETH lost more than 90% of its value.

Disclosure: The author owns a range of cryptocurrencies at the time of writing

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