Longing for finances (YFI) seems poised for a price correction after rising for five consecutive days and approaching $ 42,000. Notably, a lack of sufficient buying volume coupled with overbought risk is behind the declining outlook.
The previous YFI price rally
YFI award rose a little more than 47% to $ 41,970 in five days, as traders capitalized on top-cap cryptocurrencies like Bitcoin (BTC) and ether (ETH) and looked for short term opportunities in the altcoin market.
#DeFi Assets are showing some nice growth signals to kick off 2022. $ YFI, $ UNI, and AAVE So far, everyone has ticked well with the first Monday of the year in search of things #bullish for many #altcoins. https://t.co/8ujolCvt5z pic.twitter.com/ASpf1dUbtn
-Santiment (@santimentfeed) January 3, 2022
Yearn Finance was among the beneficiaries of the so-called Capital migrationas its value against BTC and ETH is up nearly 47% and 41.50% respectively in just five days. Meanwhile, at the core of the sudden trader Interest in buying the YFI markets was a token buyback program.
Daily price development of YFI / ETH and YFI / BTC after the announcement of the token buyback program. Source: TradingView
On December 16, the Yearn Finance team announced that it Purchased more than $ 7.5 million worth of YFI tokens from the open market at an average price of $ 26,651 per unit. They also revealed $ 45 million extra cash in their treasury that they would use to continue their YFI buyback frenzy.
Additionally, the Yearn Finance community suggested that the YFI Treasury Department lead part of the token buyback to reward YFI holders who actively participate in Yearn governance. The proposal (all the details here) is currently in the voting phase.
1/8
The cat is out of the bag here:
-Yearn has started to massively buy back YFI.
-They are rethinking their tokenomics to provide fee allocation to holders and are currently looking at the veCRV model and the xSushi models.
-The circumstances are crazy. https://t.co/CzuHhbNuhx
– Adam Cochran (@adamscochran) December 16, 2021
The YFI price rose more than 100% against the US dollar following the announcement of the token buyback.
YFI Price Correction Risks
However, YFI’s trading volume fell despite the rall, suggesting traders’ low belief of its upward move.
YFI / USD daily price chart with price-volume divergence. Source: TradingView
Typically a bearish divergence between price and volume will either correct or consolidate until conviction builds. As a result, there is a high probability that YFI will at least pause its ongoing price rally as its daily Relative Strength Index (RSI) also enters its overbought zone above 70, a sell signal.
Related: YFI Price Up 46% in Just Four Days After Yearn Finance repurchased $ 7.5M
Additionally, the Yearn Finance token’s recent price rally has brought it closer to a known turning point near $ 40,000, as shown by the Fibonacci retracement chart in the chart below.
YFI / USD three day price chart with Fib entry and exit levels. Source: TradingView
Specifically, the Fib line of 0.618 near $ 40,113 has capped YFI’s attempts to move higher during the day. The same level was instrumental in halting the Yearn Finance token price rally between October and November, which later led the YFI price to its 12-month low near $ 17,000.
However, if the bulls manage to push the YFI price significantly above the 0.618 line, they can also take the token out of its multi-month range, defined by around USD 25,500 as support and USD 40,000 as resistance. In this scenario, YFI’s next upside target could move towards the 0.5 Fib line around $ 51,000.
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