Bitrabo Editorial
A recent sharp drop in Ethereum’s price below the $1,800 level may have been predicted by an on-chain indicator.
Multi-Collateral Dai Repaid Metric Causes ETH Plunge
Data from on-chain analytics firm Santiment shows that during the past day, 43.4 million Dai was repaid using Wrapped ETH (WETH). Multi-Collateral Dai (DAI) is a decentralized stablecoin built on Ethereum and its value is pegged to the US Dollar.
Multi-Collateral DAI is backed by a mix of cryptocurrencies, unlike Single-Collateral Dai (SAI) which was collateralized by a single asset. When Dai is minted, users must deposit their collateral into smart contract vaults. In this context, stablecoin tokens minted using WETH as collateral are significant.
The “Multi-Collateral DAI created” indicator measures the total number of stablecoin coins that are being minted using WETH right now. On the other hand, the “Multi-Collateral DAI repaid” metric tracks cases where WETH has been returned after issuing tokens have been destroyed.
According to the chart below, large spikes in the Multi-Collateral Dai repaid indicator have preceded either a top or bottom in Ethereum’s price:
One of the metrics seems to have observed a large value in recent days | Source: Santiment on Twitter
Two such instances of this trend were observed in the past year. In the first, right after the ETH price crash due to the 3AC bankruptcy, a spike coincided with cryptocurrency’s bottom formation. In the second instance in February 2021, the spike coincided with the asset forming a local top. The latest spike saw 43.4 million DAI destroyed, the third-largest value the indicator has registered during the past 12 months.
If the trend from the previous spikes holds true, the current Dai WETH repayments may lead to Ethereum observing either a local top or a local bottom. As Ethereum has already rebounded above the $1,800 level, the real effect of this metric is yet to be seen.
Current ETH Price
At the time of writing, Ethereum is trading around $1,800, down 1% in the last week.
ETH has already recovered today | Source: ETHUSD on TradingView
Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, Santiment.net