AAVE Price Struggles Amid Crypto Demand Slowdown

AAVE Price Struggles Amid Crypto Demand Slowdown

The price of AAVE has faced downward pressure this week as enthusiasm in the cryptocurrency market waned following Donald Trump’s recent inauguration. The token has declined for two consecutive days, reaching a low of $336—16% below its year-to-date peak. This drop has brought its market capitalization down to $5 billion.

AAVE Price Signals Bullish Patterns on the Horizon

The weekly chart highlights that AAVE reached a high of nearly $400 earlier this month before retreating to $340. However, the token has shown resilience by moving above the 50-week and 25-week Exponential Moving Averages (EMAs), signaling bullish momentum.

Notably, AAVE appears to be forming a bullish pennant chart pattern, which consists of a vertical rally followed by a symmetrical triangle consolidation phase. This formation is akin to a bullish flag but features a distinct triangular shape during consolidation.

Moreover, the coin has surpassed a critical resistance level at $154, last reached on March 11, 2022.

If the current trajectory holds, AAVE is likely to test the $400 mark, representing a 20% upside from current levels. Breaking through this level could set the stage for further gains, potentially targeting $670—an increase of 100%. However, a drop below the key support at $256, last observed on January 13, would invalidate this bullish outlook.

Catalysts Driving AAVE’s Potential Upside

Several factors could propel AAVE’s price upward:

1. Strong Position in DeFi Ecosystem
   AAVE is now the second-largest player in the decentralized finance (DeFi) space, trailing only Lido DAO, the top liquid staking platform. The protocol boasts over $21 billion in total value locked (TVL), with the majority of this volume—$18.2 billion—on the Ethereum blockchain. Other notable chains in the AAVE ecosystem include Arbitrum ($1.07 billion), Avalanche, Base, Polygon, and Optimism.
2. High Profitability
   AAVE ranks as one of the most profitable networks in the crypto industry, generating over $508 million in the past year, according to TokenTerminal. This performance places it fourth in the DeFi sector, following Uniswap, Lido Finance, and Jito.
3. Upcoming V4 Upgrade
   The anticipated V4 upgrade could act as a major catalyst for AAVE. Building on the success of V3, V4 introduces advanced features such as modularity, reduced governance complexity, and integration with GHO, AAVE’s native stablecoin. The upgrade will also feature a unified liquidity layer for managing supply caps, borrowing limits, interest rates, assets, and incentives. Scheduled for release later this year, V4 has the potential to significantly enhance AAVE’s ecosystem and token value.
4. Growing Network Activity
   Investor confidence in AAVE appears to be rising, as evidenced by an increase in on-chain activity. New wallet addresses associated with AAVE have surged by 36% in the past week, while active addresses grew by 18%.
5. Support from Major Investors
   World Liberty Financial, a prominent DeFi project associated with Donald Trump, has chosen AAVE as its primary technology provider. Furthermore, the organization recently acquired 20,000 AAVE tokens worth over $6.6 million, underscoring growing institutional interest in the project.

Conclusion

While the AAVE price has faced recent challenges, it remains poised for a potential rebound. With bullish technical patterns emerging, growing adoption in the DeFi sector, and the upcoming V4 upgrade, the token is well-positioned for a strong recovery. However, traders should monitor the $256 support level closely, as a breach could signal a bearish turn.