The second-largest cryptocurrency in the world had been in the spotlight throughout 2020, mainly because its market valuation had been rising impulsively. We’ve even talked about some of the reasons why Ether could outperform Bitcoin this year and until 5 days ago that had been the case. However, in the meantime, the price had slumped impulsively, raising questions on the massive run higher that started after the March selloff.
# Largest Price Drop Since March
Ether buyers are under heavy strains, now that the price dropped more than 30%, from top to bottom tick. The token found resistance around $488 and then slumped to @311 in four days, the largest decline since March. Statistically speaking, parabolic price action structures end violently and Ether proves that point.
However, the main thing to note is that such impulsive selling is dampening the appetite to buy and will require more confirmation the downside is over before bulls will be confident to rejoin the trend. The token is still in the positive on a yearly basis, but that does not mean the current selloff is not complicating the picture.
# Is DeFi showing its limitations?
One of the main highlights of 2020 had been represented by decentralized finance (DeFi). At the same time, since most of the DeFi projects were on the Ethereum blockchain, Ether had been benefited from massive inflows, as investors locked a record amount of funds into DeFi apps.
Still, the numbers show most of the projects had been related to lending. In other words, investors locked ETH or other tokens on lending platforms, used them as collateral to make loans, and supporting rising market valuations. The problems appear when the loans must be repaid, which can lead to market corrections.
# Long-term prospects for Ether
In the long run, though, Ether continues to be one of the most trusted cryptocurrency. Aside from the signs showing the crypto market maturing, Ethereum 2.0 implementations, and innovations with DeFi, can have a meaningful impact on the Ether ecosystem. As a result, the market valuation still has upside potential.
Timing the next upside move correctly will be the main challenge for crypto investors/traders looking forward, given the wide range of variables that can influence pricing. Keep in mind cryptocurrencies had been rising alongside other risk assets like stocks and now that a correction is underway, how the broad financial markets perform can influence crypto as well.