AAVE Price Rallies by 32%, Is this an Indicator for a Major Recovery Ahead?

Key Takeaways

• AAVE sees a 32% rally over the past week
• AAVE introduces its own ‘overcollateralized’ stablecoin: GRO
• Major upside possible is AAVE thanks to attractive on-chain valuations

AAVE Price Analysis for the Week

Aave (AAVE) which has been one of the largest DeFi lending platforms out there in the crypto space. According to the official definition, Aave is a decentralised finance (DeFi) protocol that lets people lend and borrow cryptos and real world assets (RWAs) without  having to go though a centralised intermediary. And much like the traditional lending, lenders earn interest while borrowers pay the interest.

Initially built as a ERC-20 token on Ethereum network, it has now expanded to Avalanche, Fantom and Polygon amongst others amid rising popularity. The value of AAVE tokens also comes from the fact that the protocol itself uses a decentralised autonomous organisation, or a DAO. That means it is operated and governed by the people who hold and vote with AAVE tokens.

Also a lot of positive news is coming along the way for Aave. It recently announced its plans to launch a new ‘overcollateralized’ stablecoin called GRO under its banner too.

1/ Calling all GHOsts 👻 

We have created an ARC for a new decentralized, collateral-backed stablecoin, native to the Aave ecosystem, known as GHO.

Read more below and discuss your thoughts for the snapshot (coming soon)!👇https://t.co/P7tHl9LbBe

— Aave (@AaveAave) July 7, 2022

AAVE TECHNICAL Analysis

AAVE/USD | Source: Tradingview

From a technical standpoint, AAVE price has been in a downward trending range ever since July 2021 (marked in grey on the chart). However, its fall has been relatively slower than the rest of the market hence after a rally over the past week, it has managed to breach its 50-day moving average. However, it is still well below its 200-day moving average and more importantly, the upper trendline resistance of the downward channel on the chart.

But, going forward it will have the support of the Relative Strength Index to breach through its immediate resistances. The $250 level resistance would be something that AAVE bulls may find difficult to breach, but if they are able to, backed by broader market cues, it will open up the sky for AAVE.

Check out latest AAVE Price, Charts & Data.

WHAT DO NETWORK VALUATIONS SUGGEST FOR AAVE?

NVT ratio, or Network Value to Transactions ratio describes the relationship between the crypto’s market cap to the volume transferred over the chain. According to Willy Woo, its creator, NVT can be considered analogous to the PE Ratio (price to earnings ratio) used in equity markets.

What is basically suggests is how much the broader market is valuing the crypto with regards to its on-chain transactions. A higher NVT Ratio suggests that people are valuing it much higher than current levels, and thus pricing the token at a premium. However, extremely High NVT Ratios coincide with market tops and may be followed by some correction.

A low NVT Ratio suggests that investors are valuing the crypto at a discount to the volumes transferred over the chain. This also sometimes coincides with market bottoms and a recovery usually takes place from here. A balanced NVT Ratio indicates that the current growth trend of both Market Cap and Transfer Volume are in equilibrium, suggesting the current market trend is sustainable.

NVT Ratio | Source: coinmtrics.io

As we can see from the chart above, despite the fact that the market has fallen significantly, the 7-day moving average of the NVT Ratio is reasonably low as compared to the peak achieved between January to March 2022. This indicates that current market valuation of the crypto is reasonable when compared to its recent past.

Now it must also be noted that towards the end of October 2021, it achieved an all-time-high in its TVL, touching around $30 billion which has now fallen close to $9 billion. So going forward, if we see a recovery in TVL, we may be able to see a good recovery in the price of the token.

Additional Read: Total Value Locked Explained

CAN AAVE’S LOW ASSET VALUE BRING ABOUT A PRICE HIKE?

Before that, let’s understand another metric – the MVRV Ratio. According to definitions, MVRV Ratio (market value to realised value) is a ratio of an asset’s Market Capitalization versus its Realised Capitalization. The comparison of these two metrics tells us when AAVE price is above or below a ‘fair value’ and assess market profitability.

MVRV Ratio | Source: coinmtrics.io

So as is apparent from the chart above, the MVRV Ratio has been on a steady downtrend, in line with the fall in market cap of the coin. So what that means is that while the numerator of the ratio has gone down (the market cap) the realised cap can be assumed to have managed to retain its value over the same period better than the market cap.

It is also well established that MVRV trading below 1 has historically signalled bear market bottoms, and smart money accumulation are in play. Thus this token can be expected to rise if only Bitcoin and the broader market provide some positive cues.

Check out latest AAVE to INR Price, Charts & Data.

Additional Read: Crypto Market Weekly