AAVE price confirms bullish reversal pattern even as TVL dropped to 5-month low

AAVE price has confirmed a breakout from a bullish reversal pattern, even as activity in its ecosystem continues to slow down.

According to data from crypto.news, Aave (AAVE) rebounded 13.5% on Wednesday, Dec. 3, after being in a downtrend over three months that had kept bullish momentum in check. Trading at $192.8 at press time, the 46th-largest crypto asset with a market cap of $2.92 billion was still down 10.3% over the past month and 46% below its August high.

AAVE price dropped as activity on the Aave network has slowed over the past few months. Data from DeFiLlama shows that the TVL locked in DeFi applications on the network has declined from its yearly high of $76.49 billion to $54.2 billion at the time of writing. Weekly revenue generated by the network has also dropped from $4.34 million seen in October to $1.76 million last week.

When the TVL and revenue generated by the platform are on a downtrend, they indicate lesser participation from traders and weaker protocol usage, which in turn could prompt investors to look for better-performing alternatives or exit their positions altogether. 

In Aave’s case, heavy selling from whales following its August highs likely spooked retail investors.

Despite this, a slew of catalysts likely led AAVE to bounce back this week. These include a proposal from the AAVE DAO to initiate a $50 million annual AAVE buyback program, aiming to bolster token value while the protocol finalizes its V4 upgrade. 

The upgrade is expected to enhance capital efficiency and improve user experience, as the protocol aims to better compete with other leading DeFi platforms in a rapidly evolving landscape.

Investors were also talking about Aave expanding its lending market to Mantle. This expansion is seen as a potentially positive development that could support Aave’s price in the long term by increasing its total value locked and user base.

AAVE gains were also supported by a positive statement from US SEC commissioner Paul Atkins, who said the agency plans to unveil the “innovation exemption” framework for crypto firms. 

The development sparked a market-wide recovery rally led by Bitcoin (BTC), which retraced some of its recent losses, climbing back from $86,400 to over $93,500 in less than 24 hours.

On the daily chart, AAVE price has broken out of a descending parallel channel pattern, a structure formed when an asset’s price forms lower highs and lower lows for an extended period while remaining between two parallel descending trendlines.

When an asset breaks out from the upper trendline of the pattern, as AAVE did today, it typically signals that bulls may be regaining momentum. 

Complementing this, the MACD lines have also pointed upwards, another sign that selling pressure has eased and buyers have stepped up to regain control. Further, the Aroon indicator also flashed a buy signal, with the Aroon Up at 100% and the Aroon Down at 14.29%.

Hence, if bullish strength continues to support AAVE, it could most likely rally to $250 next, a level that marks a confluence of two key technical signals, the 50% Fibonacci retracement level and the measured target from the breakout of the parallel channel pattern. The upside target lies nearly 30% above the current price.