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DeFi Tokens Prep for Ethereum ETF Decision: What’s at Stake?
- The price chart performance of the DeFi sector was muted ahead of the ETH ETF expiration.
- Ethereum sentiment will influence the next price direction for most DeFi tokens.
THE DeFi the narrative was dragging the meme coin industry for a while. At the time of writing, most DeFi tokens were in the process of price consolidation prior to Ethereum [ETH] ETF expires this week.
Being the home and pioneer of DeFi (decentralized finance), Ethereum sentiment can directly influence most DeFi tokens, such as Aave [AAVE], Creator [MKR]OR Uniswap [UNI].
DeFi market capitalization has fallen below $100 billion. Additionally, trading volume has flattened in recent weeks as approval possibility it remained below 25%, according to Polymarket, a forecasting platform.
Source: DeFi market cap, TradingView
After the mid-April drop, DeFi was restricted to between $85 billion and $100 billion. This means that most blue-chip DeFi tokens may have had lateral movements.
DeFi tokens follow the price action of ETH
ETH saw the same price action and fluctuated between $3,300 and $2,900 during this period, meaning that DeFi tokens followed the king of altcoins.
Uniswap, along with the SEC’s Wells Notice, also retraced near its January lows, effectively erasing most of its 2024 gains. The DEX token is back in its long-term 2022-2023 range.
Source: UNI/USDT, TradingView
A similar weakened market structure was also present in the price charts of MKR with a higher time frame. The DeFi token dropped from $4,000 and was hovering around $2.8K at the time of writing.
Most major blue-chip DeFi tokens showed players being sidelined while waiting for the ETH ETF announcement, as evidenced by indecision or a sideways move.
However, other DeFi tokens, such as AAVE, have highlighted a bearish flag pattern, which could expose it to a decline of around 20% if ETH ETFs are rejected.
Source: AAVE/USDT, TradingView
Will ETH Sentiment Affect DeFi Tokens?
Bearish pressure on some DeFi tokens may be exacerbated by declining trading volume as of this writing. CoinMarketCap data revealed DeFi trading volume sank by more than 10% in the last 24 hours.
Source: Santimento
The negative weighted sentiment on ETH at the time of writing could further limit the upside of DeFi tokens.
With ETH selling momentum as evidenced by the spike in supply on exchanges, a rejection could lead to huge discounts on several DeFi tokens.
That said, negative sentiment on ETH could derail the DeFi narrative and its tokens, especially if the SEC rejects Ark/21Shares’ filing on May 24.
However, in an unlikely ETF approval scenario, DeFi tokens could anticipate a bullish breakout.