A handful of worrying factors, in addition to AAVE’s correlation with the NASDAQ, raise the possibility that the altcoin will suffer another sell-off.
Technical analysis suggests that a recent uptrend in Aave (AAVE) price is showing signs of exhaustion based on the early development of a classic bearish reversal pattern.
Called a “rising wedge,” the pattern appears when the price rises within a range defined by two converging, ascending trendlines. When this occurs, trading volume decreases, indicating a lack of conviction among traders when additional purchases are needed to continue the upward momentum.
Is AAVE heading towards $70?
Falling wedges usually lead to a bearish breakout, where the price breaks below the lower trendline of the pattern and falls as far as the maximum distance between the upper and lower trendline of the wedge.
AAVE has painted a similar pattern amid its strong move, higher from nearly $61.50 on May 12, to above $93.50 on May 17. If a sustained breakout occurs, AAVE will drop to at least $27, which is the maximum height of the wedge.
This puts AAVE on track at around $70, down 25% from the current price of $89.20.
Bearish Winds Persist
The bearish setup for AAVE comes on the back of the current strong correlation of the cryptocurrency market with the US stock markets.
The daily correlation coefficient between the AAVE and the tech-heavy Nasdaq 100 stood at 0.91 as of May 17, showing that both markets have moved in almost perfect tandem.
The Federal Reserve’s aggressive monetary policy, which includes the recent 0.5% hike in benchmark interest rates, is at the center of this synchronous trend, in the face of rising inflation.
In comparison to AAVE, Ether is down more than 50% so far this quarter as investors reduce their exposure to riskier assets including Bitcoin (BTC) and tech stocks in a higher interest rate environment. This leads to the opinion of BOOX Research, financial blogger at SeekingAlpha, who remains long-term bullish on Bitcoin, Ethereum and the cryptocurrency market in general, but believes that the recovery could take several years.
Fears of Further Selling Remain, as Wall Street Veterans Warn of Impending Recession
According to Lloyd Blankfein, former CEO of Goldman Sachs, higher interest rates, coupled with supply chain problems, further lockdowns in China, and the conflict in Ukraine, could keep inflation high. The persistent combination of these factors is likely to cause the Federal Reserve to maintain its aggressive policy and the rebound effect will be a reduction in US economic growth.
Likewise, Michael J. Wilson, Chief US Equity Strategist and CIO of Morgan Stanley, reiterated the same catalysts while predicting a 15% decline in the benchmark S&P 500 Index. As a result of its correlation with cryptocurrency, the AAVE is also at risk of similar bearish moves heading into 2022.
It is worth considering the fact that the war between Russia and Ukraine, inflation, and the measures that are being taken to mitigate it continue to be the topic of the day for central banks around the world. This will undoubtedly be one of the main topics of the World Economic Forum, since the 2022 event begins on May 22.
The Forum, and the ability for attendees to make Bitcoin-related statements, both positive and negative, will follow a different meeting this week in El Salvador, where representatives from 44 countries are discussing Bitcoin.
By Audy Castaneda
