ETH Locked in DeFi Crosses 3 Million, Accurately Predicting Ethereum’s Latest Rally
Ethereum Price: $140.34
Ethereum Price (BTC): 0.018629BTC
Market Cap: $15.35B
ETH Network Dominance*: 67.17%
7 Day Candle**: $134.79 / $140.77 / $125.42 / $140.34
In the last week, the total amount of ETH locked in decentralized finance (DeFi) crossed the 3 million mark ($416 million at today’s price), which accounts for just under 3% of the total circulating supply of Ethereum.
The excitement surrounding DeFi was even picked up by the Financial Times on December 30th – the paper’s first piece to extensively cover the topic.
The largest application within this market is Maker, a platform that has seen the total amount of ETH locked in its contracts increase by 10% in the last 30 days.
Those locking ETH in Maker are able to mint the stablecoin, DAI. This DAI is invariably used to leverage a position in ETH by buying the ETH/DAI pair (DAI’s most traded market).
Leveraging ETH can be extremely risky. A miscalculated position could find the trader being liquidated if the price of ETH falls, incurring a significant cost. Traders, therefore, are most likely to leverage ETH when the price of ETH is considered to be undervalued and is expected to increase.
This can clearly be seen playing out in 2018/19. The amount of ETH locked in Maker rose sharply from 230K to over 1.5M (green range on chart below) while the price of ETH continued its decline to $83.90 in December 2018. The most rapid gains in ETH locked (leveraged) occurred in December around the time of this low.
Put more plainly, traders leveraged more aggressively as the price of ETH decreased with the hope of taking a position near the bottom. The most active leveraging was accurately made within days of ETH’s low.
After the December 2018 low, ETH locked in Maker began to slow (red range on chart) as the price of ETH approached its 2019 high of $335.69 in May of that year. In this instance, traders stopped leveraging as they accurately predicted that they were nearing the top of the market.
1 month later, traders on Maker began to rapidly exit their leveraged positions (orange range on chart), weeks ahead of the market’s crash in July 2019.
In October 2019 a similar pattern happened. ETH locked in Maker began another upward trend (blue range on chart), increasing from 1.5M to 2.4M with the largest gains seen over December 16, 17th and 18th – when ETH was trading at its lowest level in almost year.
This latest activity could be indicative of another longer term trend – the price of ETH has risen by nearly 15% in the last couple of weeks, shortly after Maker holders began leveraging their ETH during the lows of December 2019.
ETH locked in Maker is possibly one of the most underrated signals for investors in this space. The nature of the platform, which is complex and requires an understanding of web3, filters out nearly the entire retail market, leaving behind the essence of sophisticated opinion.
What Maker provides, then, is a sentiment signal for the price of ETH that is crowd-sourced without the noise of mainstream markets.
You can follow the amount of ETH locked in Maker using the charts at DeFiPulse.com.
As the price of ETH crosses $140, it’s possible this signal from Maker hints at a much more positive trend ahead.
– Nick, Owner EthereumPrice.org
* calculated as: (ETH Market Cap / Ethereum Network Market Cap)
** open / high / low / close