It is day six and YFI has not stopped falling from its all-time high above $44,000.
The Yearn Finance’s governance token remains among the best-performing crypto-assets in 2020, with lifetime gains near 2,000 percent. Nevertheless, its higher-than-expected price has also reduced its bids in the open market. That has resulted in a sharper decline.
YFI/USD dropped another 15 percent during the Monday session, marking $22,495 as its intraday low. That brought the pair down by almost 48 percent from its all-time high. At the same time, the total value locked inside the pools of Yearn Finance moved towards $950 million. It is now on the verge of hitting a record level.
Total value locked in the Yearn Finance pool. Source: DeFi Pulse
Total value locked in the Yearn Finance pool. Source: DeFi Pulse
The ballooning liquidity pool and falling prices expressed conflict between YFI’s fundamental and technical aspects. While a $950 million worth capital reserves showed that more users were choosing Yearn Finance for its lending aggregator services, the demand for the product failed to excite traders in increasing their exposure in YFI.
The YFI-Yield Farming Connection
Part of the reason could be an underperforming yield farming sector itself. Yearn Finance, as a project, aggregates lending services such as Aave, Compound, Fulcrum, and DyDx, to find the best yields for its users. So when a user deposits his/her tokens into the yearn.finance pool, they receive yTokens in return.
Meanwhile, people who provide a certain amount of yTokens back to Yearn Finance receive YFI, a cryptocurrency that gives users the right to make changes in the yearn.finance protocol via on-chain proposals and voting.
Therefore, demand for YFI depends on the yTokens liquidity. So it appears, not many yTokens holders are demanding YFI. Sam Bankman-Fried, the CEO of crypto derivatives exchange FTX explained:
“On the one hand, I think people don’t realize that while YFI itself isn’t yield farming, it’s revenue comes from yield farming, so it’s still really tied to it. So it crashes with farming.”
The analyst, meanwhile, added that he remains long-term bullish for YFI because its creator, Andre Cronje, keeps building new applications around it.
“So though I’m bearish on YFI as it exists right now, YFI might become something much more powerful over time,” he added. IDK, YFI seems much more like a bet on @AndreCronjeTechthen a bet on @iearnfinanceto me.”
Technically Bearish
Despite favorable fundamentals, YFI/USD expects big trouble ahead as the pair breaks below a multi-week support trendline.
The Yearn Finance token is logging a Head and Shoulder breakout. Source: TradingView.com
The Yearn Finance token is logging a Head and Shoulder breakout. Source: TradingView.com
So it appears, the green price support was serving as a base to a Head & Shoulders pattern, as confirmed by three back-to-back peaks with the middle one longer than the rest. YFI/USD broke below the neckline on Sunday, now pointing to an extended move downwards.
Ideally, the downside target should be as much as the height of the middle peak. But given YFI’s lack of trading history, it is possible that traders attempt a pullback move at the Fib retracement levels below. It starts with $23,927, and shifts lower towards $19,429, $13,025, as so on.
A retracement move would prompt traders to attempt a close above the green trendline.
