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COMP, a governance token associated with lending platform Compound, is back into rough waters after sailing calmy for days.
The 37th-largest cryptocurrency by market cap fell by $25.14, or 20.15 percent, to $100.68. Its move downside started at a local top of $126.10, established after an eight-day upward consolidation of around 45 percent.
That was similar to how other altcoins performed in the same timeframe: beginning with a rebound rally and lately falling after setting a sessional high.
The Compound's long positions failed to match expectations. Source: COMPUSD on TradingView.com
To Compound, however, the latest downside correction appeared more serious. That is because of its prevailing bearish correction that began at COMP’s all-time high near $277 and hinted to conclude at $86.63 – a 68.78 percent decline, overall.
Traders perceived COMP’s sharp rebound from $86.63 as a sign of renewed buying enthusiasm. As of this Wednesday, many among them were claiming to extend their Long targets for the token, with one among them saying that the token would rise to $129.47 in the coming sessions.
But an extreme profit-taking sentiment poured cold water on the bullish targets. COMP plunged, leaving traders with an upside outlook at a considerable loss.
Argh, should have waited for a 4h close above the magic EMA 🙁
Doubling down here close to invalidation and giving it up if we don't bounce here. pic.twitter.com/qpJIJirHrO
— krillin ॐ (@LSDinmycoffee) October 28, 2020
That left the Compound token’s short-term outlook more uncertain as ever.
What’s Ahead for Compound
Technically, the Compound token appeared stuck below a resistance level at $127.63 that coincided with the 23.6% Fibonacci level of the retracement graph from a swing high of $261.71 to a swing low of $86.21.
The Compound token is pursuing a deeper bearish correction following its parabolic rally to $277. Source: COMPUSD on TradingView.com
Traders approached $127 multiple times in the last 30 days to break bullish. But each one of their attempts met with a pullback. On Wednesday also, COMP’s explosive move towards the said level met with extremely high selling pressure.
Therefore, it became vital for COMP to invalidate $127 as its interim resistance level to shift its primary upside target towards $153.25 at the 38.2% Fibonacci line. Otherwise, the token risked crashing back to its sessional low of $86.63 with an additional bearish sentiment below the level.
Overvalued?
The initial Compound gains appeared out of a so-called DeFi breakout quarter, wherein every decentralized finance project returned enormous profits to their stakeholders. Compound, as a distributed lending platform, was investors’ favorite, locked more than $911 million worth of capital into its liquidity pool, signaling adoption for its COMP tokens.
As of now, the same Compound pool has about $1.06 billion worth of assets. But that is not reflecting the price of COMP. One analyst explained why.
The pseudonymous entity had complained about the COMP’s overvaluation back on July 2, stating that its Compound protocol is basically an AUM business. The ideal valuation of such models is around 1/3 or 1/4 of the total assets in custody.
1/ I'm short on $COMP, the fundamentals of the 'governance', given the public information, don't make too much sense today.
Won't be surprised to see it fall below $100 unless a revenue model is proposed soon. – Read full thread..
— TS ⚡️ (@thetaseek) July 2, 2020
“BlockFi is valued at around 200M when their AUM was 650M. (This is generous as Goldman Sachs is valued at less than 1/50 of their AUM),” the analyst wrote, adding:
“Given that the COMP market cap is at $2 billion when there’s $1 billion of AUM…the fair value of the token, (assuming similar long term profitability as other crypto AUM businesses) should be at around $50 today.”
The Compound market cap is now just shy of $428,000. That, according to the pseudonymous analyst, should be way lesser than $50.
