DeFi sector could be at huge risk if ETH declines to $1,000

Current Ethereum Price: $1,920

• A significant drop in Ethereum’s price to $1,000 could lead to widespread liquidations and lessen investor enthusiasm for DeFi, as highlighted by a prominent analyst.
• The lackluster performance of this leading altcoin coincides with growing concerns around DeFi’s involvement in the Bybit hacking incident, which facilitated the movement of stolen funds.
• If Ethereum cannot maintain a solid recovery above $2,200, it may drop to the crucial support level of $1,500.

On Friday, Ethereum (ETH) increased by 3%, trading above $1,900 at the time of writing. Even with these recent modest gains, the foremost altcoin could trigger a significant downturn in the DeFi space if it resumes a bearish trend and approaches the $1,000 mark.

Ethereum’s Drop Poses Major Risks for DeFi

According to a key figure in the industry, Ethereum’s potential descent to $1,000 presents a grave risk for the DeFi ecosystem.

“The idea of Ethereum hitting $1,000 is a heavily discussed issue within the DeFi community,” this expert stated. “Given that Ethereum underlies a large portion of DeFi initiatives, a significant price drop could diminish the total value locked (TVL) within DeFi protocols, hinder liquidity, and erode investor trust,” they added.

In the past year, Ethereum has been among the poorest performers among major cryptocurrencies, having declined to levels not seen since November 2023, following the recent tumult in the crypto market.

Since December 2024, the total value locked in all DeFi protocols has dropped by 30%, from around $130 billion to $90 billion, while Ethereum’s TVL has seen an alarming ~40% decrease from approximately $75 billion to $46 billion, as reported by DefiLlama.

If ETH continues on this downward trajectory, particularly amid speculation of a looming bear market, it could lead to severe liquidations and deter new investments within the sector.

“The perception of instability may push users toward alternative platforms or cause them to reconsider participating in DeFi projects, which could hinder progress and innovation in this area,” the expert remarked.

This prediction emerges at a time when DeFi is still reeling from its connection to hackers who exploited the Bybit exchange, stealing about $1.5 billion in ETH and subsequently obscuring their funds. The perpetrators employed the cross-chain protocol THORChain to convert over 70% of the stolen Ethereum into BTC, resulting in Asgardex, a DEX on the protocol, earning around $900,000 in fees for facilitating these transactions.

“Supporters of DeFi maintain that the decentralized nature of these platforms excuses them from liability for any illicit acts performed by users. Conversely, critics argue that these protocols and stances are incompatible with legal standards,” noted a recent report.

“Potential OFAC sanctions, legal actions against developers, and exchange delistings remain potential consequences as DeFi collides with traditional finance,” they added.

Ethereum Price Outlook: $1,500 Remains on the Table if Recovery Above $2,200 Doesn’t Occur

In the last 24 hours, Ethereum experienced $21.02 million in futures liquidations, as per recent data. Long and short liquidations amounted to $5.86 million and $15.16 million, respectively.

ETH continues to navigate a fluctuating path within a significant rectangular channel, a trend that has persisted since it fell below $2,200, finding support around $1,750.

ETH/USDT weekly chart

Analysis from Glassnode indicates that the number of ETH acquired around $1,880 grew from 1.6 million ETH to 1.9 million ETH in recent days, reinforcing the strength of the support level at $1,750. This aligns with social media trends, as phrases like “buy-the-dip” and “bottom” have gained traction since ETH hit $1,800.

Nonetheless, consistent failures to achieve a solid recovery above $2,200 could place a drop to $1,500 on the horizon, marking the next significant support in the rectangular channel.

The Relative Strength Index (RSI) is currently below neutral territory, and the Stochastic Oscillator (Stoch) remains in the oversold region, suggesting that selling pressures are still strong in the ETH market. However, if the Stoch crosses above its moving average line, momentum could shift towards bulls.

A weekly candlestick close above $2,200 would invalidate this bearish outlook.