AAVE, the native token of the Aave lending protocol, experienced a slight 0.27% price decline over the past hour, dropping to $54.58. This continues AAVE's downward trajectory, with the token losing 1.20% over the last 24 hours. Zooming out, AAVE is down 4.45% over the past week and 13.55% in the last month.
AAVE's market capitalization currently stands at $793.22 million, making it the 48th largest cryptocurrency. Trading volume over the last 24 hours was $41.94 million. Let's take a deeper look at some of the key technical insights from AAVE's recent price action.
What's Behind AAVE's Recent Weakness?
Several factors appear to be weighing on AAVE's price performance in recent weeks. First, broader weakness in crypto markets is likely impacting sentiment. Bitcoin is down 2% over the last week, while Ethereum has lost over 5% - dragging down many altcoins like AAVE.
Secondly, some analysts point to decreasing utilization of the Aave protocol itself. The total value locked on Aave has declined from over $6 billion in May 2022 to around $2.8 billion currently. This drop in lending activity on the platform seems to be negatively impacting the AAVE token.
Finally, the collapse of FTX seems to have hurt confidence in centralized and decentralized lending protocols. Investors are more risk-averse when it comes to these types of platforms following FTX's implosion.
AAVE Long-Term Chart Remains In Downtrend
From a technical perspective, AAVE remains locked in a long-term downtrend dating back to November 2021. The 50-day moving average is trending below the 200-day MA - a bearish signal. AAVE recently bounced off support around $50, which aligns with its summer 2022 lows.
However, there is significant resistance around $65, which blocked upside moves in October. For AAVE to convincingly break its downtrend, it likely needs to close above this level on high volume.
The MACD indicator on the weekly timeframe remains negative, reflecting bearish momentum. Look for this to cross back above zero before anticipating any sustained reversal.
Is AAVE Undervalued at Current Levels?
Given its substantial year-to-date losses, AAVE could be viewed as undervalued at its current price around $55. AAVE traded above $600 in late 2021, so it has lost over 90% of its value at the recent lows.
AAVE currently trades at a price-to-earnings ratio of just 6.7 based on its annualized Q3 2022 earnings. This is quite low compared to many tech stocks and could signal that pessimism is overblown. If lending activity and crypto markets recover, AAVE could bounce strongly.
However, risks remain elevated for AAVE and the broader crypto market. The correlation between stocks and cryptos has increased in 2022, so deteriorating macro conditions could spark another leg lower. Investors should watch for a break above resistance before calling a bottom in AAVE.
What's the Outlook for AAVE Over the Next Year?
Given the technical damage and uncertain macro environment, AAVE may continue to face headwinds over the next 6-12 months. A retest of the summer lows near $50 seems likely, especially if the crypto bear market intensifies.
However, markets move in cycles. Once economic uncertainty and risk aversion subside, cryptocurrencies with strong fundamentals like AAVE could stage powerful relief rallies.
AAVE still offers innovative decentralized finance capabilities that are not matched by traditional finance. As blockchain adoption increases, platforms like Aave should capture more value.
Traders may want to watch for capitulation signals like a spike in volatility and trading volume. That could signal a washing out of weak hands and ultimately mark a long-term bottom. But patience is warranted given the persistent bearish technicals.
What Are the Key Things to Watch with AAVE?
AAVE traders should keep an eye on a few key metrics when analyzing upside or downside potential:
Sentiment and Momentum
Watch for bullish divergences on the RSI or MACD, signaling early shifts in sentiment. Also monitor social media for changes in investor mood.
Bitcoin strength or weakness often impacts altcoins. Monitor Bitcoin's market cap ratio for signals of rotation into altcoins.
Utilization and revenues on Aave are key fundamental drivers of AAVE price. Rising platform lending is bullish for the token.
Is Now a Good Time to Buy AAVE?
Timing any bottom is difficult, but dollar cost averaging can help smooth out volatility. Considering its substantial pullback in 2022, AAVE appears relatively inexpensive for long-term investors.
However, in the near term, additional drawdowns are very possible given weak technicals. Wait for confirmation of a direction change before going all in. Patience and discipline are key for trading effectively in any market environment.