Aave Fell 3 Times More Than Ethereum This Week After a Whale Moved $22.9 Million. Can It Hold $120?

Aave (CRYPTO:AAVE) has witnessed a notable decline of 12.6% this week, significantly outpacing Ethereum’s (CRYPTO:ETH) drop of 3.7%. This downturn followed the transfer of $22.9 million worth of AAVE from a dormant wallet to exchanges, raising concerns about potential sell-offs. Currently, AAVE is trading at $132, which is below its lowest daily closing price of $136 over the past month.

The long-term outlook for AAVE appears grim, with a 17.6% decline over the last two weeks, and it remains a staggering 80% below its all-time high of $662 achieved on May 18, 2021. Traders are now focusing on whether the token can maintain its support level at $120, which is approximately 9.4% lower than its current valuation.

The recent price drop can be largely attributed to the actions of a significant institutional investor, who had been inactive for over a year. This entity moved $22.9 million in AAVE and an additional $10 million in Worldcoin (CRYPTO:WLD) to exchanges, as reported by blockchain analytics firm Lookonchain. In cryptocurrency terminology, a "whale" refers to an individual or entity holding a substantial amount of a particular coin, which can influence market prices through their trading activities. The act of depositing coins onto an exchange often signals that a whale may be preparing to sell.

However, it is important to note that a deposit does not guarantee a sale; institutions might transfer coins for various reasons, including custody, collateral for loans, or private trades. Currently, there is no on-chain evidence indicating that the whale has sold any AAVE, and its subsequent actions could provide crucial insights for AAVE holders, possibly offering more clarity than technical price charts.

The mere act of a large deposit can trigger quick reactions among traders. Many may decide to sell at the sight of a whale deposit to avoid being caught in a sudden price drop, leading to a preemptive sell-off that can further depress prices. However, if the whale opts not to sell, the market pressure could alleviate once those anxious sellers exit.

While the whale's activity is a significant factor in AAVE's price drop, it does not account for the entirety of the decline. On October 26, Bitcoin (CRYPTO:BTC) also experienced a downturn, contributing to a broader decline across the cryptocurrency market. Thus, AAVE was already on a downward trend before news of the whale's transactions came to light.

Despite the recent price fluctuations, AAVE's decline does not necessarily indicate poor performance in its core business model. Aave operates as a decentralized lending platform, allowing users to deposit cryptocurrency to earn interest or borrow against their assets. The AAVE token primarily serves as a governance tool for holders to vote on protocol changes. Notably, borrowers continue to pay interest regardless of the token's market price, which can help maintain stability in the lending operations even when the token's value decreases.

In terms of trading metrics, AAVE is currently below both its 20-day average of $155 and its 50-day average of $150, suggesting a short-term bearish trend. However, it remains above its 200-day average of $107, which is viewed as a long-term trend indicator. During peak trading hours, AAVE's price dipped as low as $129, but buyers stepped in, stabilizing the price between $130 and $133 thereafter.

Interestingly, trading volume during this decline has been notably lower than during the high-volume trading sessions seen in late September and early October, when AAVE reached a 30-day high of $184 on October 5. The reduced volume indicates a steady trickle of selling, but a mass panic sell-off, often observed at market bottoms, has yet to materialize.

In contrast to AAVE's struggles, Ethereum managed to gain 1.4% over the last 24 hours, while AAVE experienced a 1.8% loss. Worldcoin, associated with the whale's movement, saw a significant decline of 25.7% over the week. Over the past month, AAVE's losses totaled 14.5%, while Ethereum's losses were limited to 13.0%, indicating that AAVE's recent difficulties are largely tied to the recent whale activity.

The disparity in market depth plays a crucial role in these dynamics. Ethereum benefits from much higher trading volumes, meaning a $22.9 million order would have minimal impact on its price. Conversely, AAVE and Worldcoin have thinner order books, making them more susceptible to sharp price declines from large sell-offs by individual holders. This situation often leads traders to sell quickly upon noticing a whale deposit.

Looking ahead, AAVE may be able to maintain its price above the $120 mark in the short term. The current decline appears to be a reaction to whale activity, which has not yet resulted in confirmed sales. Data from Lookonchain reflects deposits rather than actual sales, and the lower trading volumes imply that fear, rather than a surge in selling, has driven most of the price drop.

AAVE started its 60-day period at $122 on August 28, making the $120 level psychologically significant as it corresponds with the price before its rise to $184. If AAVE's price dips below $129, it could indicate weakening buying interest, and confirmation of the whale's sale could push prices further down. Should it fall below $120, the next support level to watch would be the 200-day average at $107, approximately 19.1% lower, followed by a 90-day low of $86 recorded on August 16.

On a more optimistic note, if the whale's coins remain unsold and exit exchanges, it could alleviate selling pressure, potentially allowing AAVE to retest its 50-day average of $150, which is 13.0% above its current price.