New report suggests Ethereum owners, DeFi helps ETH crash below $ 1.7K


You might also like

The drop in the price of Ether (ETH) cannot throw long-term owners off balance, while the Decentralized Finance (DeFi) sector also offers opportunities for investors.

This suggests a new Glassnode report that found that many long-term Ether holders (> 155 days) are sitting on the profits despite ETH / USD falling 55% from its high of over $ 4,300. In comparison, the short-term ether holders (<155 days) watched their profits fizzle out and are now sitting under water.

“After hitting nearly 46% of market cap in unrealized gains, short-term holders now hold a total paper loss of -25% of market cap,” wrote Glassnode. “Conversely, long-term owners stay firmly in profit and hold paper profits that correspond to around 80% of market capitalization.”

Those who have suffered losses are more likely to liquidate their ETH holdings, Glassnode added, referring to its proprietary STH-NUPL (Short Term Holder Unrealized Profit-Loss) indicator which fell below zero.

Net Unrealized Profit / Loss (NUPL) looks at the difference between unrealized profit and unrealized loss to determine whether the network as a whole is currently profit or loss free.

Ether short-term holder NUPL falls below zero. Source: Glassnode

Glassnode went on to note that LTH-NUPL, an indicator that measures net unrealized gains and losses of long-term holders, stagnated during Ether’s downward revision. According to the data analysis service, a flat LTH-NUPL indicated holders’ intent to take downside risks in the ether market.

Long-term ether holder NUPL is close to 1. Source: Glassnode

DeFi to Limit Ether Declines?

The last LTH-NUPL levels above 1 were during the 2017-2018 bull run which saw ether prices soar by 20,217%. Nonetheless, the massive rally was followed by an equally strong sell-off – ETH / USD wiping out nearly 95% of those gains.

The massive declines showed long-term owners panicking their ETH holdings after seeing their paper profits disappear.

But 2018 didn’t have a DeFi sector to take the ETH of these holders and return them with annualized returns like a government bond. Glassnode noted:

“Unlike the earlier days of Surrender, many of these longtime owners can now put their assets into DeFi. ETH is widely deposited in loan protocols like Aave and Compound, where it currently sees over $ 4 billion in deposits outstanding.

Outstanding deposits and loans in Aave and Compound as of Wednesday. Source: Dune Analytics

Long-term holders can borrow stablecoins – tokens pegged to the US dollar – by keeping their ETH as collateral with Aave and Compound protocols. As a result, the strategy enables depositors to generate attractive returns without risk or speculating on token prices.

“These holders can amass governance tokens, increase their stablecoin balances, or shop into large dips while maintaining the commitment they have as long-term lenders to ETH,” the Glassnode report added. “Deposits and loans in Aave and Compound remain strong.”

Borrowing unstable assets, however, remains a riskier alternative. For example, governance tokens fell more than 60% from their highs during the recent downturn. DeFi participants, especially those who are long-term Ether holders, are therefore looking for risk-free, high-yield farming opportunities to survive the downward volatility.

Given the continued strong liquidity of the DeFi platforms, which is just over $ 100 billion according to data provided by Glassnode, and the willingness of Ether holders not to liquidate their assets, it is likely that ETH will end in 2021 avoid a downward revision as in 2018.

The views and opinions expressed are those of the author only and do not necessarily reflect the views of Every step of investing and trading involves risk, so you should do your own research when making a decision.