There are many ways to predict the movement of the second biggest cryptocurrency on the market. One of them was presented by Delphi Digital, the regular Ethereum price in USD against the Total Loans Outstanding Metrics that includes AAVE, Compound and MakerDAO.
Technically, the metric reflects the amount of existing liquidity on the network. As we can see by taking a look at the chart, liquidity in the aforementioned solutions directly affects the price performance of Ethereum.
Thanks to the high correlation, we can use liquidity as an analysis tool. Ethereum's tight dependency on the market's liquidity should not surprise anyone as the performance of the second biggest cryptocurrency in the industry relies heavily on trading volume, depth of the market and overall usage of the network.
Loans on the aforementioned platform are used as liquidity exposure tools. By depositing relatively smaller collateral, investors have the ability to gain additional liquidity and conduct certain deals on the market while not actually owning an asset.
End of Ethereum's year
Unfortunately, the second biggest cryptocurrency is not in the mood for a solid bounce ahead of 2023. The volatility of the asset has been at the lowest level throughout the year due to the generally decreasing network activity and a lack of risk demand that leads to descending volume and liquidity on the market.
Apart from macroeconomic factors, Ethereum has been going through an increased issuance period due to extremely low network activity. Without the activity on the network, Ethereum's burning mechanism is not going to work as intended, making the cryptocurrency inflationary once again.
Alex Dovbnya
Vladislav Sopov