Why is AAVE crashing?

Aave price is hovering around $343 on Thursday after correcting more than 6% this week.
The recent decline resulted in $5.13 million in total liquidations, 84% from long positions.
The AAVE NPL metric shows a huge increase, suggesting owners are taking profits and increasing selling pressure.

The price of Aave (AAVE) is hovering around $343 on Thursday after correcting more than 6% this week. The recent decline resulted in $5.13 million in total liquidations, 84% of which were from long positions. Aava’s Net Realized Profit/Loss (NPL) indicator is showing a huge increase, suggesting owners are taking profits and increasing selling pressure, hinting at a double-digit correction to come.

Aave bulls are showing signs of exhaustion

Aave price faced a correction on Tuesday after hitting the $400 level on Monday following a more than 30% rise last week. At the time of writing on Thursday, it is hovering around $343.

If AAVE continues its pullback, it could extend the 17% decline to retest its next support level at $284.63.

The Relative Strength Index (RSI) on the weekly chart is at 74, above its overbought level of 70 and pointing down, indicating weakness in the bullish momentum. If the RSI falls below the overbought level, it could indicate a downtrend.

AAVE/USDT weekly chart

Aave’s recent drop on Wednesday sparked a wave of liquidations totaling over $5.13 million, with 84% coming from long positions, according to CoinGlass data.

Liquidations like this could create fear, uncertainty and doubt (FUD) among AAVE investors, increasing selling pressure and driving its price down further.

AAVE Liquidation Chart. Source: Coinglass

AAVE’s Net Realized Profit/Loss (NPL) indicator for chain data provider Santimenta lends further credence to the bearish outlook. The NPL metric shows a huge increase on Tuesday, rising from 24.29 million to 292.44 million, almost 12 times in one day. Strong spikes in a coin’s NPL indicate that its owners are selling their bags on average at a significant profit and increasing selling pressure. A similar move could be seen on February 24, 2021, where the metric jumped almost 20 times in one day, leading to a 25% drop in the price of AAVE over the next five days.