This is the indicator of a chain that may have predicted the recent decline in Ethereum price below the $1,800 level.
Ethereum Drops After Multi-Collateral Dai Metric Spikes Reversed
According to data from the chain analysis firm Sentiment, 43.4 million Dai were refunded in Returned ETH (WETH) during the past day. Dai Multi-Collateral (DAI) is a decentralized stablecoin built on the Ethereum blockchain that is loosely pegged to the US Dollar, meaning its value is fixed at $1.
The coin is called multi-collateral because it is backed by a combination of cryptocurrencies. An earlier version of the coin was Single Collateral Dai (SAI), and it only supported one asset.
When Dai is minted (that is, new coins are put into circulation), users must deposit their collateral in the smart contract vaults. In the context of the current discussion, of interest are the stablecoin tokens WETH uses as collateral.
The “Created Multi-Collateral DAI” is an indicator that measures the total amount of coins of the stable currently being minted using WETH. The counterpart metric of this indicator is the “Multicollateral DAI refunded,” which naturally tracks the cases where WETH is returned after the issued tokens have been destroyed.
Here is a chart showing the trend of these two return Ethereum indicators over the past year:
One of the metrics seems to have observed a large value in recent days | Source: Santiment on Twitter
As you can see in the graph above, Santiment highlighted an interesting pattern that Ethereum price followed in response to spikes in the Dai Multi-Collateral return indicator.
It’s like every time a large amount of Dai is destroyed to release WETH, the price of the cryptocurrency is registered at a top or bottom. In the last year, there were two cases of this trend.
The first of them happened almost a year ago, right after the ETH price fell due to the bankruptcy of 3AC. This spike coincided with the cryptocurrency’s bottom formation.
The other was earlier in February of this year and unlike the first, this spike coincided with the asset’s local peak.
Recently, the indicator has noticed a big spike again, which means that someone has withdrawn a large part of the return form of Ethereum that was previously used to withdraw Dai tokens.
In total, 43.4 million DAI have been destroyed with this latest spike. This is the third largest for the indicator in the last 12 months and only the aforementioned instances of the metric registered pullbacks on larger scales.
If the pattern of the previous spikes holds any weight, then Ethereum may be looking at a local top or local bottom on current Dai WETH returns.
Yesterday, Ethereum fell below the $1,800 level, so the drop may have been due to the spike in the indicator. Today, however, the cryptocurrency has already rebounded back above this level, so it is difficult to say if the impact of the metric has already been done with, or if the real effect is yet to come.
The price of ETH
At the time of writing, Ethereum is trading around $1,800, down 1% over the past week.
ETH has already recovered today | Source: ETHUSD on TradingView
Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, Santiment.net
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