The beginning of the month was highly positive for the cryptocurrency market; however, the landscape changed in the last few days. The cryptocurrency market started to lose value rapidly at the end of this week once the US SEC intensified its clampdown on crypto staking.
Compound (COMP) has weakened more than 10% since February 08, falling from $58.46 to a low of $47.84. The current price of Compound (COMP) stands at $49.84, which is more than 70% off from its 2022 highs that were registered in January.
But where is the price of Compound (COMP) going next, and what can we expect from the rest of the first quarter of 2023?
Today, Crypto Lists will discuss Compound (COMP) price estimates from a technical and fundamental analysis perspective. Please note that there are also many other factors to consider when entering a position, such as your time horizon, willingness to risk, and how much margin you have if trading with leverage.
All about Compound
Compound is a decentralized, blockchain-based protocol that allows its users to lend and borrow cryptocurrencies. Compound was founded by entrepreneurs Robert Leshner and Geoffrey Hayes, and according to them, the legacy financial system was slow, inefficient, and constrained by intermediaries.
Compound aims to build a financial system in which everyone can achieve prosperity, and it is important to say that this project dedicates lots of effort to providing the simplest experience for its clients. Compound is built for developers, and it is managed by a decentralized community.
Many cryptocurrencies can be borrowed or supplied on this protocol, and when you supply an asset to Compound, you immediately begin receiving interest on that deposit. Compound connects lenders and borrowers using a combination of smart contracts running on Ethereum, and it is important to mention that users who lend assets to the protocol, can take out a loan in any other cryptocurrency that Compound offers, up to the amount of collateral posted.
While complex, the model has so far proved adept at attracting users and encouraging other DeFi cryptocurrencies to adopt its model. To interact with this decentralized, blockchain-based protocol, you must use the COMP tokens that allow you to debate, propose, and vote on changes to the Compound protocol.
Compound is a project with big potential; the popularity of this project is rising across the globe, and COMP may be of interest to anyone who wants to earn additional income by lending or borrowing cryptocurrency.
The beginning of the 2023 year has been very successful for COMP; however, the trend has changed in the last several days. COMP has weakened more than 10% since February 08, and the risk of further decline for COMP is not over. The outcome of the recent negative events raised more doubts in the crypto space, and as a result, the optimism of cryptocurrency investors fell again.
The U.S. Securities and Exchange Commission intensified its clampdown on crypto staking and continued with efforts to bring crypto operators within the U.S. under the same regulatory framework that governs the sale of all sorts of securities — to treat cryptocurrencies much like stocks and bonds.
In the latest of a string of actions brought by the US SEC, the crypto exchange Kraken agreed to pay $30 million to settle allegations that it broke the U.S. Securities and Exchange Commission’s rules by offering a service that allowed investors to earn rewards by “staking” their coins.
According to the U.S. Securities and Exchange Commission, Kraken failed to register its staking program, which exposed investors to risks with minimal protection.
“As the SEC has so far not even approved a Bitcoin spot ETF, it seems unlikely that it would have approved a slightly more obscure product like staking. While the SEC enforcement is negative for the industry, it also excluded U.S. crypto users from being part of the innovation.”
– Markus Thielsen, Head of Research, Matrixport
Another negative news came from Fed Board Governor Christopher Waller, who called crypto a “speculative asset” and said that if the price of cryptos drops to zero, taxpayers will not socialize crypto losses. At the same time, investors face a mounting wall of worries, including the prospect of a more hawkish U.S. Federal Reserve monetary policy outlook.
Even if the Fed does do a few extra interest rate hikes, the main question still remains how much time Fed will need to hold policy at restrictive levels. The federal funds rate is now in a range of 4.5% to 4.75% (the highest level since 2007), and there’s a general expectation of a contraction in the economy in the next several months, and it’s going to have an impact on corporate earnings.
The cryptocurrency market is still heavily correlated to equities and vulnerable to macro market shifts, while multiple data also points hint that Bitcoin might still not reach the bottom. Crypto analytics firm The Block reported this Friday:
“Bitcoin options markets are signaling that investor sentiment has hit a new low for the year. The seven-day 25% delta skew hit -5.2 on Friday, its lowest since December 28 2022. The 30, 60, 90 and 180-day 25% delta skews were all at or close to at least one-month lows, with all aside from the 180-day having fallen back under zero in recent days. That suggests investors are positioned for further downside in the Bitcoin price in the short term.”
The upside potential for the price of Compound (COMP) probably remains limited, and traders should keep Bitcoin on their watchlist while placing a short position toward the area.
Technical analysis for COMP
Compound (COMP) has weakened from $58.46 to $47.84 since February 08, 2022, and the current price stands at $49.84. Compound (COMP) might have a hard time holding above the $47 level in the upcoming days, and a break below this level would indicate that COMP could probably test the price level at $45.
Important support & resistance levels for COMP
On this chart (the period from April 2022), I marked important support and resistance levels that can help traders to understand where the price could move. COMP remains under pressure, but if the price advances above the resistance that stands at $60, the next target could be $65.
The current support level is $45, and if the price breaks this level, it would be a “SELL” signal, and we have the open way to $40. If the price drops below $40, which represents an important psychological support level, the next target could be located around $35.
What speaks for the rise in the COMP price
The last several days have been hard for the cryptocurrency market, and cryptocurrencies have been suffering as the US SEC intensified its clampdown on crypto staking. The upside potential for COMP remains limited for now; still, if the price advances above $60, the next target could be $65 or even resistance that stands at $70.
It is also important to note that any news that gives hope that the Fed is becoming less hawkish is viewed as a positive for cryptocurrencies, and COMP could advance from the current price level if the Federal Reserve hints at slowing the pace of rate increases.
What indicates further downfall for COMP
Compound (COMP) has remained under pressure since February 08, and despite this, market participants should be ready for another potential downward move. The U.S. Securities and Exchange Commission intensified its clampdown on crypto staking, and as a result, the optimism of cryptocurrency investors fell again. The current support level for COMP stands at $45, and if the price breaks this level, the next target could be $40 or even below.
What do analysts and experts say
Fundamentals of Compound (COMP) are strongly tied to the overall cryptocurrency market, which keeps it prone to undergoing additional downtrends. The consensus appears that the price of COMP could drop even lower after crypto analytics firm The Block reported that investor sentiment had hit a new low for the year.
Investors are positioned for further downside in the Bitcoin price in the short term, and because of this, we could see new lows for COMP. Bloomberg Intelligence’s Senior Macro Strategist, Mike McGlone, said that the U.S. stock market could see further losses over the coming months, and investors should consider that the crypto market displayed a high correlation with U.S. equities.
Disclaimer: Crypto is extremely volatile and not suitable for everyone to invest in. Never speculate with money that you cannot afford to lose. The information on this site is presented for educational purposes only and should not be construed as investment or financial advice.