The decentralized finance, or DeFi, market has seen a sharp correction in the past 12 hours as Bitcoin (BTC) failed to break the $ 41,000 level.
Meanwhile, analysts say profits from major DeFi tokens are flowing back into Bitcoin, although the DeFi market is still lagging despite BTC’s rebound last week.
1-hour candle DeFi index (Binance). Source: TradingView.com
What’s next for the DeFi market?
Both the big blue-chip DeFi tokens and the low-capitalization cryptocurrencies struggled to recover against Bitcoin over the weekend.
Typical DeFi blue chip assets include Aave (AAVE), SushiSwap (SUSHI), Uniswap (UNI), Maker (MKR), Compound (COMP) and Synthetix (SNX).
The most important DeFi tokens with slightly lower market capitalizations include Alpha Finance (ALPHA), Yearn.finance (YFI) and 0x (ZRX).
The main reason behind the correction in the DeFi market is that the profits from DeFi tokens flowed into Bitcoin when BTC pulled out.
This trend added to the selling pressure on DeFi tokens, especially as the Bitcoin / Ether (ETH) pair has seen short-term weakness in the past two days.
The cryptocurrency market has been moving quickly, however, and as such, market dynamics could change rapidly in the next few days, especially with the launch of CME Ether Futures on Monday.
At the same time, another DeFi rally could be triggered by the price of Bitcoin neatly above $ 40,000 this time around and consolidating between $ 41,000 and $ 42,000.
For this to happen, Ether would have to catch up with Bitcoin and gain momentum again over USD 1,700 in the short term. Currently, ETH is lagging behind Bitcoin and the ETH / BTC pair is struggling to recover.
Whether the ETH will reclaim USD 1,700 as a support area is likely the key factor that will determine the development of the DeFi market in the foreseeable future.
ETH / BTC 1-hour candle price table (Binance). Source: TradingView.com
Can Bitcoin Rise To A New All-Time High?
Puru Saxena, a retired investor and money manager, said if Bitcoin went back above $ 40,000 it would invalidate the bearish scenario. He said:
“Bitcoin is back above $ 40,000 and although it still hasn’t taken out its ATH unlike the previous cycle, it hasn’t completely collapsed either. If $ BTC closes above its January high, it means that my view of price action was WRONG and the bulls were right. “
Exchange heatmaps, particularly Binance’s order book, have large selling walls of $ 41,000 and $ 42,000. If Bitcoin reclaims $ 40,000 and makes its way to $ 41,000, it would confirm that a bullish market structure is still intact.
If Bitcoin regains strength, taking into account that the DeFi Index has not broken its parabolic structure, the rally is more likely to continue than a steep correction.
The previous DEFI index appears to be another pause in the longer-term trend. Breaking a curve would be worrying. pic.twitter.com/WfmNTnTOq4
– Alice (@AliceCrypt) February 7, 2021
Bluechip DeFi’s assets have already started bouncing back to the daily opening on Feb.7 with AAVE, SNX and ALPHA showing strength.
However, it would be critical for the DeFi Index to bounce past 2,080 in the short term, but to maintain its bullish market structure which would require a 4% rally.