Ethena’s Uptrend Hits Roadblock: 14% Decline Sparks Concern, What’s Next For ENA?

Key Takeaways

• ENA fell 14%, hitting resistance and raising concerns.
• USDe rewards on Bybit offer up to 20% APR.
• What happens at $0.40 will determine the outlook.

After plummeting to $0.34 in July, Ethena (ENA) staged a remarkable 50% recovery, only to be met with resistance on July 24, sparking a downturn.

At the time of writing, ENA had retreated to $0.40, raising questions about the token’s future trajectory.

In our previous analysis, we highlighted the pivotal role of this level in shaping Ethena’s outlook. Now, with the recent rejection, the stage is set for a showdown between bulls and bears. Will the bears seize control, or was this merely a minor setback before Ethena resumes its upward march?

Bullish Catalyst? 

Ethena Labs is set to launch  its USDe rewards program on Bybit, offering up to 20% APR on holdings. Starting on Aug. 2, this initiative allows traders to earn daily rewards with no minimum holding requirement, enhancing capital efficiency by potentially offsetting funding costs. 

The Total Value Locked (TVL) in Ethena Labs has surpassed $3.6 billion, highlighting its significant growth in decentralized finance. Bybit users can trade USDe with zero fees across USDe/USDT and USDe/USDC pairs, positioning USDe as a key currency on the platform.

USDe Demand Boosts ENA Price

An increase in demand for USDe can positively impact the value of ENA, Ethena Labs’ governance token. This relationship is primarily driven by the interconnectedness of the two tokens within the Ethena Labs ecosystem.

Increased Utility and Adoption: As USDe expands its utility and adoption, such as being accepted as collateral on leading platforms like Bybit, its demand will likely surge. This, in turn, can drive up the TVL within the Ethena ecosystem, which has historically correlated with increased demand for ENA, the governance token.

Rewards and Incentives: Ethena’s system incentivizes holding or using USDe by offering rewards in ENA. For example, staking USDe or using it in trading activities can earn users additional ENA tokens. As the demand for USDe increases and more users participate in these activities, ENA’s distribution and demand can rise, potentially increasing its value.

Ecosystem Development: The growth and expansion of Ethena Labs, fueled by the popularity of USDe, can lead to more partnerships, integrations, and innovations within the ecosystem. As these developments make the platform more attractive, they can enhance the value proposition of holding ENA, thereby boosting its market value.

In summary, the demand for USDe can significantly impact the value of ENA by increasing the ecosystem’s TVL, enhancing the utility and rewards associated with ENA, and driving further ecosystem development. 

The integration of USDe on Bybit, for instance, allows traders to earn up to 20% APR on their holdings and use USDe as collateral while also impacting the value and utility of ENA.​

ENA Price Analysis 

ENA reached an all-time high of $1.52 on April 11 but has been in a bearish trend since, forming a descending triangle. The price fell to a low of $0.35 on July 5, a 77% decline that could have concluded this downtrend, but ENA’s price needed to make a breakout on its next rise to confirm this. 

Bullish Scenario 

Instead of breaking out, ENA experienced rejection at the descending resistance at $0.52, leaving two potential outcomes ahead. 

One possible interpretation is that the rally from July 5 unfolded as a five-wave leading diagonal, which would be followed by a three-wave corrective downturn.

If this scenario plays out, ENA should find immediate support at $0.40 and then move upwards, ultimately breaking out to new highs and surpassing the July 24 peak.

However, this assumption raises several red flags. Notably, the presumed fifth wave terminated at the same level as the previous high, which is unusual and warrants caution, as truncations are possible but not typical in Elliott Wave theory.

That said, the price has now reached the 0.618 Fibonacci level, a common reversal point for corrections. If an upward move ensues, it could spark a positive rally, shattering the descending resistance and propelling ENA toward a target high of $0.70 in this bullish scenario.

Bearish Scenario 

A concerning sign for ENA’s price is that it has fallen into the territory of its first wave during its fourth wave. This characteristic is more commonly seen in ending diagonals than in leading diagonals.

Considering that these diagonals form triangle shapes, not channels, this development reduces the likelihood of a new uptrend starting from July 5.

If ENA is in a bearish scenario, the price increase from July 5 to July 24 can be seen as a corrective move within a larger, long-term downtrend. This implies that ENA’s price may decline, potentially reaching $0.25.

In this bearish scenario, two additional waves labeled X and Z would extend the highest degree correction. The price increase from July 5 to July 24 would represent the completion of the second wave, X.

The crucial factor in determining which scenario plays out will not be what happens at the $0.40 area. Instead, the price action will be decisive. If the price bounces at $0.40, it may indicate a breakout and further upside. If the price continues to move past $0.40, a further decline is likely ahead.