Yearn Finance (YFI) looks set to undergo a price correction after rising five days in a row to approach $ 42,000. In particular, a lack of sufficient purchase volume coupled with the risk of overbought is at the origin of the bearish outlook.
The YFI price rally so far
The YFI price jumped just over 47% in five days to $ 41,970, as traders pulled their capital from top-cap cryptocurrencies like Bitcoin (BTC) and Ether (ETH) and have looked for short term opportunities in the altcoin market.
#Challenge assets show good signs of growth for the start of 2022. $ YFI, $ UNI, and $ AAVE all going well so far with the first monday of the year ahead #bullish for many #altcoins. https://t.co/8ujolCvt5z pic.twitter.com/ASpf1dUbtn
– Santiment (@santimentfeed) January 3, 2022
Yearn Finance has been among the beneficiaries of the so-called capital migration, as its value against BTC and ETH has increased by almost 47% and 41.50% in just five days. Meanwhile, at the heart of traders’ sudden buying interest in the YFI markets was a token buyback program.
On December 16, the Yearn Finance team announced that it had purchased over $ 7.5 million worth of YFI tokens from the open market at an average price of $ 26,651 per unit. They also revealed an additional $ 45million in their cash flow that they would use to continue their YFI buyout frenzy.
Additionally, the Yearn Finance community also proposed that YFI treasury direct a portion of the token buyback to reward YFI holders who actively participate in the governance of Yearn. The proposal (full details here) is currently in the voting phase.
Since the cat is out of the bag, here is:
-Yearn has started to buy YFI on a massive scale.
-They are reviewing their tokenomics to distribute fees to holders, and are currently reviewing the veCRV model and xSushi models.
-The ratios are crazy. https://t.co/CzuHhbNuhx
– Adam Cochran (@adamscochran) December 16, 2021
The YFI price jumped more than 100% against the US dollar after the announcement of the token buyback.
YFI price correction risks
However, YFI’s trade volume fell despite the rally, suggesting traders’ low conviction in its upward movement.
Typically, a bearish divergence between price and volume leads to a correction or consolidation until conviction increases. As a result, the likelihood of YFI at least suspending its ongoing price rally is high, with its daily Relative Strength Index (RSI) also entering its overbought zone above 70, a sell signal.
Related: YFI Price Gains 46% In Just Four Days After Yearn Finance’s $ 7.5 Million Buyout
Additionally, the latest price rally for the Yearn Finance token brought it closer to a known inflection area near $ 40,000, as seen in the Fibonacci retracement chart in the chart below.
In detail, the 0.618 Fib line near $ 40,113 limited YFI’s attempts to rise during the day. The same level was instrumental in stopping the Yearn Finance token price from rising between October and November, which then drove the YFI price to its 12-month low, nearly $ 17,000.
Nonetheless, if the bulls manage to push the YFI price above the 0.618 line decisively, they may also pull the token out of its multi-month range of around $ 25,500 as support and $ 40,000 as resistance. In this scenario, YFI’s next bullish target could move to the 0.5 Fib line around $ 51,000.
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