Liquidity is backbone of any financial market, and sometimes it can be used to predict upcoming price swings
There are several ways to predict the movement of the second largest cryptocurrency in the market. One of them was introduced by Delphi digitalRegular Ethereum price in USD against Total Loans Outstanding metrics including 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 dependence on market liquidity should come as no surprise as the performance of the second largest cryptocurrency in the industry is heavily dependent on trading volume, market depth, and overall network utilization.
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.
Ethereum’s end of the year
Unfortunately, the second largest cryptocurrency is not in the mood for a solid rally until 2023. The volatility of the asset has been at its lowest level in a whole year due to generally declining network activity and lack of risk appetite which leads to downsides. Volume and liquidity on the market.
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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.
