Aave price is in trouble as US money market fund yields rise
Aave price has been in a strong bearish trend in the past few months.
There are concerns about the American interest rates.
Money market funds and CDs have a better yield than Aave.
AAVE price has underperformed the market amid rising concerns about the DeFi protocol’s viability in a high-interest rate environment. The token plunged to a low of $55 on Monday, a 42% decline from the highest level this year.
Higher interest rates
Aave is a DeFi protocol that enables people to earn interest by providing liquidity in its ecosystem. This liquidity is then used to lend money to other people, who are interested in its crypto loans.
Aave is the second biggest player in the DeFi industry with a total value locked (TVL) of over $7.2 billion. Only Lido DAO, with a TVL of over $14 billion is bigger than Aave.
The challenge that Aave and other cryptocurrencies are facing is that cash is providing bigger returns these days. For example, money market funds in the US are yielding over 5% in the US.
In contrast, most coins in Aave offer a smaller yield than the USD. For example, the deposit APR for WETH is 2.26% while USDC, USDT, and Dai have a 2.81%, 4.45%, and 2.79%, respectively.
Therefore, many people, especially those in the United States are likely rotating from crypto to US assets. This partially explains why the US dollar index (DXY) has jumped to over $104.
The challenge for Aave is that rates will likely remain significantly high for a while since inflation remains significantly higher than the Fed’s target of 2.0%.
Aave price prediction
The daily chart shows that the AAVE price has been in a strong bearish trend for a long time. It has moved below the descending trendline shown in black. It also sits slightly above the important support at $49.90, the lowest level on June 14th and January 2nd.
Therefore, there is a likelihood that the coin will have a bearish breakout in the coming weeks. This view will be confirmed if the coin moves below the support at $49.89. A move below this price will see it drop to a low of $40.
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