AAVE (AAVE) Price Analysis and Prediction: Will the Rally Continue?

The cryptocurrency market has continued its downward trajectory, extending losses that began on July 22. The market has shed approximately 3% of its value, with the majority of cryptocurrencies trading in the red.

The cryptocurrency market faced a downturn on Aug. 1, extending losses that began on July 22. The market shed about 3% of its value as most cryptocurrencies traded in the red.

However, AAVE stood out with a significant gain of nearly 9% over the past 24 hours. As the broader market encountered difficulties, AAVE’s contrarian performance raised questions about its potential drivers.

A closer look at the derivatives market could help uncover some key factors. Data from CoinGlass for July 31 and Aug. 1 showed a substantial imbalance in liquidations, with short positions accounting for a hefty $1.165 million compared to $597,000 in long positions.

Moreover, a dramatic spike in open interest was evident, rising to $124.59 million on July 31 from a low of $80 million. This surge, which represents the total number of outstanding derivative contracts yet to be settled, indicated a significant amount of leverage currently at play in the market.

The current open interest levels are also notably higher than those observed in March 2023, when AAVE’s price was trading at about $90. This historical context could present interesting implications for AAVE’s price trajectory in the current market environment.

AAVE hit a yearly peak of $155 on March 12, following an uptrend that began in mid-June from a support level of around $50. This uptrend formed a five-wave pattern, signaling a new bullish phase.

Subsequently, the price entered a corrective stage, dropping to $72 by April 13. This level was retested on July 5, completing a five-wave ABCDE correction within a descending triangle. The following rise suggests the beginning of a new bullish phase, as we saw a breakout above its descending flat triangle.

Today, AAVE reached a higher high than its July 14 one and slightly surpassed its May 27 one, which is labeled as the D wave from the ABCDE correction. This rise started on July 25, as the price retraced to 0.618 Fibonacci level after its initial breakout uptrend.

A closer examination of AAVE’s hourly chart reveals a period of consolidation, characterized by a zig-zag pattern, before the price surged upward today. This price action suggests that AAVE is gearing up for its next move.

The daily chart, however, presents a more nuanced picture. The RSI is approaching overbought territory, which could indicate a potential reversal on the horizon. Nevertheless, the overall structure of the chart remains bullish, suggesting that AAVE's uptrend is still intact.

There are two possibilities ahead. The first scenario suggests that AAVE has marked a third wave of a developing five-wave impulse, which began on July 25. If this scenario plays out, AAVE is likely to break above $120 and continue its ascent toward the $140 area, coinciding with the 1.618 Fibonacci extension.

The alternative scenario presents a more cautious view. According to this possibility, the rise from July 25 represents a lower-degree B wave within a still-developing ABC pattern.

This would imply that the price action from July 15 to July 25 was the first wave of a larger corrective pattern. If this scenario unfolds, AAVE may experience another decline to $100 or slightly below before resuming its upward trajectory.