Maker price has rarely reached these levels…so how sustainable is this rally

On the back of its lukewarm price action for most of March, mid-April saw MKR hike by almost 100%, with the same pushing the value of the altcoin past $4,000 and later, $4,500. While MKR has often flown under the radar, this movement caught a lot of eyeballs because it was contrary to the recent bearishness in the wider market.

What’s behind the latest resurgence in MKR’s price? Has the altcoin finally caught wind of the bull market and tagged along? Well, an argument can be made in support of the same, but perhaps, other organic developments have had more to do with the same.

Consider this – Last week, MakerDAO and Centrifuge teamed up to introduce real-world assets to DeFi. Following an executive vote that has since been passed, users can now finance loans using MakerDAO as a credit service. Under the same, depositors to the Centrifuge pool will be given loans paid in DAI, with digitizable physical assets such as real estate and cars being part of such deposits.

The scope of the development was best highlighted by MakerDAO’s Sébastien Derivaux who revealed,

1/ This happened, a decentralized protocol minted 38k $DAI out of thin air to finance a mortgage loan.
Real-World Asset are now a thing for @MakerDAO thanks to @centrifuge and @NewSilverLend#DeFi meets #RealEstate pic.twitter.com/r1velhuZYg

— Sébastien Derivaux (@SebVentures) April 21, 2021

“This is DeFi taking on traditional finance,” Derivaux later added.

This is a huge development, one that could have significant implications not just for the protocol, but the space in general. And, that’s not the only recent development either. Just a few days ago, it was reported that CitiGroup had written to fund managers about MakerDAO, calling it “the decentral bank,” while also listing out the benefits of DeFi. Now, this isn’t the first time the project has been hyped up like this. However, in light of who the author is and who the target audience is, this is a huge deal.

It was on the back of these developments that MKR hiked on the charts, a price action quite contrary to what the rest of the market was seeing on the back of Bitcoin’s fall below $60,000 and later, $50,000.

As with every northbound price action in the market, this begets the question – Is MKR’s price pump sustainable?

For a DeFi protocol, the simplest measure of how well it is doing is the Total Value Locked metric. Maker, despite the fact that its pumps have been more recent, has continued to hold on to the first position on the charts, with the same enjoying a TVL of $9.74 billion, at press time. When the year began, this figure was lower than $3 billion.

That is a significant number for a key metric, with the latter often used as the simplest representation of the aggregate amount of funds locked in a protocol and by extension, the degree of interest in it.

As useful as TVL is, however, it doesn’t answer the question of how sustainable or manageable a price pump is.

Looking at exchange activity is a good start. According to Santiment, for instance, there was a spike in Daily Active Deposits and Exchange Inflows a few days ago, with the same, historically, being a marker for a near-term local top. The same can be said about MKR’s social volume too. With the altcoin’s price still hiking at press time, one can argue that the local top is yet to come.

Source: Santiment

The Network Profit Loss indicator can also be used for the same purpose. A look at the NPL, for example, revealed that clusters have been fairly regular over the past few months – A sign of more and more people taking profits. With MKR trading near its ATH levels at press time, this is likely to gather more pace. On the back of the ensuing supply redistribution, the alt might fall back again on the price charts.

Source: Santiment

Finally, there’s the question of the MVRV. According to Santiment,

“Maker has rarely reached these MVRV levels. So the current pump is probably not expected to be very sustainable. We would expect Maker to go down to Earth. Looks super overvalued.”

In light of the above, it would seem that the top is incoming for MKR. Or perhaps, it is already here and the alt will soon find a way south. Either way, in the near term, that’s not a good picture of sustainability.