The threat of CRV liquidation due to a risky loan in AAVE has led to a decline in the governance token to an annual minimum, but there is a possibility of a strong short squeeze.
Contents:
- CRV token drop after the news
- Are you preparing to take out short positions for CRV?
- Long-term forecasts for CRV look extremely unpromising
CRV token drop after the news
On June 15, the CRV governance token, owned by the decentralized autonomous organization (DAO) Curve, dropped by 12% following reports of risky loans taken by AAVE founder Mikhail Egorov. On that day, the token reached its lowest trading level against Ether (ETH), falling to 0.00035010 ETH.
Egorov's deposits account for 50.5% of the total circulating supply of CRV.
Information from DefiLlama indicates a threat of $107 million worth of CRV liquidation, and if its price drops below $0.37, AAVE tokens will decrease by $49.56. After the initiation of liquidation, the following measures will be taken:
- CRV tokens will be locked in AAVE smart contracts until the interested party settles and completes collateral liquidation.
- It is also proposed to freeze Egorov's loans in AAVE and prevent further CRV lending to avoid a catastrophic situation.
While the size of Egorov's loans puts significant pressure on the token, negative interest rates on CRV have increased significantly, providing fuel for potential rapid growth.
Are you preparing to take out short positions for CRV
The open interest volume for perpetual swap contracts of CRV increased from $35.5 million to $46.3 million after the disclosure of Egorov's loans.
According to CoinGlass data, the CRV funding rate on centralized derivative exchanges such as Binance and OKX has reached a historical low of approximately 81% per annum. The negative funding rate indicates that most new traders are betting on further price decline.
As short positions gain interest, buyers have the opportunity to hunt for stop-loss orders. This phenomenon is known as a shorts removal, which occurs when the price of an asset sharply moves in the opposite direction of short players, who rush to protect their positions or buy the asset to close their positions.
Technical analysis provides the following information:
1. The CRV/USD pair may find support around the 2022 low between $0.53 and $0.40. 2. In the case of a short squeeze, a quick recovery is possible, and the price could reach the 50-day moving average at $0.82.
On the other hand, a breakthrough below this support level could lead to a continuation of the sell-off to the 2021 low around $0.32. Currently, CRV is trading around $0.59.
The CRV/ETH token pair looks particularly weak as it has reached a new all-time low. Technical analysis indicates the possibility of a rebound from the $0.0032 ETH level.
However, the long-term trend remains negative, being in a descending channel, especially considering the bearish market structure of ETH, which continues to be below the support level of $0.0042 ETH established in 2022.
Long-term forecasts for CRV look extremely unpromising.
Curve's revenue statistics are also unfavorable for buyers. Platform fees have significantly decreased since the FTX crash in November 2022, resulting in reduced CRV profitability. CRV stakers receive 50% of Curve's trading fees as revenue.
Although there was a temporary surge in activity on decentralized exchanges in March 2023, fees have remained at nearly a two-year low in recent months.
CRV token holders also benefit from staking by allocating rewards to specific pools. However, bribe income has remained at an annual minimum level.
Curve's liquidity has significantly decreased in recent months, making CRV more vulnerable to sharp price fluctuations. Research firm Kaiko found that CRV liquidity has decreased so much over the past year that an $800,000 order can move prices by 2%.
CRV faces significant uncertainty as there is a risk of liquidation due to a $264 million decentralized finance loan backed by CRV on Aave. However, there is a possibility of quick short-term growth as futures traders squeeze out short positions. The further reduction in CRV's market liquidity increases the risk for traders as the token is subject to high volatility.
