Here’s What Could Be Fueling Uniswap Token’s Rapid Descent Below $4.00

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Uniswap’s newly released governance token – called UNI – has seen some immense volatility in the time following its launch. After rallying from lows of $1.00 to highs of $8.50, the cryptocurrency’s price has been descending rapidly.

It appears that those who received 400+ tokens as a result of the recent airdrop are beginning to sell them to sure up their free profits, while the present lack of incentives for token holders continues placing pressure on the token.

It has now broken below $4.00 and appears to be poised to see even further near-term downside.

While speaking about where UNI may trend next, one analyst explained that he is watching for a dip down to the lower-$3.00 region before finding any meaningful support.

Another trader recently observed that this selloff is possibly fueled by low yields on the liquidity pairs that users are farming, which is significantly lower than those offered on some competing platforms.

Uniswap Struggles to Gain Upwards Momentum as Selling Pressure Mounts

At the time of writing, Uniswap’s UNI token is trading down over 6% at its current price of $3.99.

The cryptocurrency has been trading around this price level throughout the morning hours, with bulls unable to catalyze any significant strength.

The hype surrounding Uniswap was intense when it first launched, mainly because everyone who had ever used the platform partook in its meteoric price rise.

This rally allowed it to climb 900% from its lows, but it has since erased over half of these gains.

Where the token trends in the near-term may depend largely on its reaction to a key support level that it is fast approaching. This level sits at roughly $3.25, and can be seen on the below chart put forth by an analyst:

Uniswap UNI

Image Courtesy of Mac. Chart via TradingView.

Here’s One Factor Behind UNI’s Decline

While speaking about why the token has dipped so much from its highs, another trader explained that the lack of profitability for farming the token might be one reason why demand isn’t that high.

The four pools that Uniswap support for UNI farming are all yielding around roughly 30-40% APY. This number decreases as the amount of capital locked within the pools grows, and as UNI’s price declines.

“My $4 UNI target was based on 30-40% yield expectations of a farm with high IL risks. It played out much faster than expected. You get 1000 bps yield pickup with SUSHI and double if you do the sUSD-ETH pair.”

Unless there’s a mass exodus out of these pools that causes yields to spike, liquidity providers may shift their focus towards other platforms.

Featured image from Unsplash.
Charts and pricing data via TradingView.

Via: https://www.newsbtc.com

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