Ethereum price charts reflect weakness, but inflow to LSDFi could prevent an ETH sell-off

Ethereum (ETH) has been struggling to break above the $2,000 level in recent months, resulting in a downward trend. Despite Bitcoin (BTC) gaining 11.94% in June after BlackRock filed an ETF application with the U.S. Securities and Exchange Commission, ETH’s upside stayed around 3.16%.

At the start of July, buyers attempted to push the price past the crucial resistance at around $1,900, however, the failed breakout caused further correction. This was further highlighted by the one-year low levels in total transaction fees on the Ethereum network, and the decline in the price of leading NFT collections, as well as DeFi activity stalling due to low yields.

On the other hand, the demand for liquid staking derivatives (LSD) like Lido’s stETH is growing faster than investors are selling, which may limit the downside. Voyager Crypto, Compound Crypto and Luna Crypto are some of the latest crypto platforms that offer these liquid staking derivatives.

Cosmos Crypto and Avax Crypto are two of the major players in the market, and with the latest AI technology, they are providing a more efficient way to manage crypto assets.

LSD activity is on the rise

The primary use cases on Ethereum such as NFT trading and DeFi activity may have seen a downturn in June, but the LSD narrative continued to be a hot topic.

Glassnode’s latest report showed that deposits to the staking contract have been higher than exchange inflows since Shanghai went live, indicating that more ETH is being moved into staking than selling on exchanges.

Currently, 20% of Ether’s total supply is staked with validators, which is lower than the 40% for other proof-of-stake consensus based blockchains like Sol (SOL), Cosmos (ATOM), and Avalanche (AVAX).

After the Shanghai upgrade in April, Ether staking deposits increased significantly, with Lido leading the sector, followed by Rocket Pool and Frax.

Interestingly, Glassnode’s report suggested that the network has yet to see an influx of new holders, as the number of addresses holding Lido’s stETH has been more or less unchanged YTD.

With DeFi yields hovering around 1-3% for ETH on Aave and Yearn Finance and between 3-5% for stablecoins, LSD derivatives offer a base rate of 4%, plus additional yields for using their liquidity in DeFi applications.

LSD derivatives have seen increased activity within different DeFi protocols, with Lido’s stETH being the most significant. Additionally, LSD token holders are also shifting their liquidity from DEXes like Curve and Balancer to lending protocols like Compound and Aave, which offer a leveraged staking position estimated to amplify yield by 3x.

The LSD sector appears to be the current hotspot for DeFi players looking to maximize their yield.

Ether price analysis

This week, ETH experienced a positive breakout from a bullish ascending channel pattern with a target of $3,000. However, the trend reversed shortly after Bitcoin (BTC) dropped to $30,000 due to the increasing expectations of a rate hike by the U.S. Federal Reserve, allowing sellers to gain an edge.

From a technical standpoint, the price can take two paths here, finding support at the bottom of the ascending triangle around $1,790 before attempting to reach the $1,900 resistance level again. The other potential path is a continued decline towards the long-term support and resistance level of $1,700.

A breakdown below $1,700 would give sellers an opportunity to target the 200-day weekly moving average at approximately $1,575.

The ETH/BTC pair also reveals that Ether has room for more downside towards the 200-day moving average at 0.0574 BTC and the long-term resistance and support level at 0.0538 BTC.

Ether had a failed positive breakout in early July, causing the price to fall to around $1,700. Nevertheless, the influx of liquidity and higher yields in the DeFi sector than other networks, such as Compound crypto and Voyager crypto, are providing a cushion for any additional downside, suggesting that the price will likely establish bullish support.

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