AAVE Rally Potential

AAVE is on the verge of a rally, but two major obstacles could hinder its progress.

Liquidity flow to Aave has been high, with market participants placing bets.

Aave (AAVE) is beginning to recover after a major market loss of 30.91% in the past month. Press-time data shows that in the past week alone, the asset has rallied 6.66% and has added another 1.40% in the past 24 hours.

Analysis indicates that growing liquidity in the Aave protocol has contributed to this growth, and the asset could benefit further once it overcomes major barriers that may impede its upward potential.

Rocky Path Ahead for AAVE

AAVE is at a major crossroads as it attempts to breach the descending line pattern formed on its 4-hour chart. This pattern tends to be bullish in most instances when it forms in the market.

If AAVE takes a bullish path, it must breach the descending line—its first obstacle—and then rally at least 30.72% to the next major barrier, the supply region marked on the chart. This level is significant as it induced the current AAVE decline that began on March 5.

AAVE could see further declines from the supply level or consolidate within the region, as seen on the left side of the chart. If market momentum remains high and AAVE exits this supply region, it could make another leg up, rallying 42%.

Ecosystem Grows as Selling Pressure Drops

AMBCrypto analyzed AAVE’s potential to breach the descending-line obstacle and found that liquidity flow into its ecosystem would play a key role. The market capitalization-to-total value locked (TVL) ratio is a metric used to assess the ecosystem’s value relative to its price growth. When low, it implies the ecosystem is expanding with more interaction from participants, which positively affects the long-term price. As of press time, this ratio stood at 0.15, suggesting ecosystem growth.

In the spot market, selling pressure among traders has declined. As of March 19, these traders sold $5.5 million worth of AAVE, which continued in the following days. However, press-time data shows that selling has dropped to $110,000 worth of AAVE—a significant decline, implying sellers are reducing, and buying could soon begin. Buyers taking charge would support AAVE’s anticipated 30.72% rally.

More Traders Are Betting on a Breach

Even in the derivatives market, traders are betting on an AAVE price rally. At the time of writing, the OI-Weighted Funding Rate, which combines funding and Open Interest to determine market sentiment, has turned positive at 0.0087%. This positive reading indicates that buyers in the market are taking over, as more unsettled contracts are dominated by longs who are paying a premium fee to maintain their positions.

The derivatives market volume is also skewed in favor of bulls, with the Taker Buy-Sell Ratio turning 1.0056. Whenever this ratio crosses above 1, it indicates more buying than selling within the past 24 hours. If these key metrics continue to turn positive, AAVE could see a major price rally moving into the week.