A mad overnight rally in the Compound (COMP) market resulted in a vast correction this Thursday.
The popular decentralized finance token plunged by more than 25 percent from its year-to-date high at $268.63. The massive intraday plunge appeared majorly because of profit-taking behavior among daytraders.
The Compound chart on TradingView.com shows COMPUSD plunging 15% in the last 24 hours.
COMP had earlier rallied 75 percent in just six days, a move that gave speculators enough scope to liquidate their bullish targets at attractive profits. As a result, the DeFi cryptocurrency plunged hard.
YAM
Another factor that accelerated COMP’s downside swing concerned the newly-launched DeFi coin YAM.
The so-called “yield farming” project surfaced with the promise of offering an elastic supply crypto-asset called YAM as a reward for staking COMP and similar tokens.
Yam Finance’s proposal turned up demand for the DeFi cryptocurrencies. The ticker COMPUSD rallied 35 percent to circa $231 on a 24-hour adjusted timeframe. Meanwhile, Aave’s LEND, Chainlink’s LINK, Maker’s MKR, and other tokens also surged higher within the same period.
YAM, a stablecoin otherwise, surged from zero to as much as $138 following its launch on August 11.
But it turned out to be a one-day wonder. The coin succumbed to a bug within its “rebase function.” It means the DeFi token lost control of its on-chain governance model, the one it proclaimed as a fork of the Compound model.
The bug eventually drained $750,000 worth of Curve tokens from the YAM’s parent Yearn Finance’s reserves. Here is what founder Brock Elmore said after the loss.
i’m sorry everyone. i’ve failed. thank you for the insane support today. i’m sick with grief
— belmore🍠 (@brockjelmore) August 13, 2020
The very factor that pumped COMP higher on Wednesday disappeared. That further played a crucial role in sending the token’s price lower on Thursday.
COMP Support
Incidentally, the COMP crash found a stable support level in its 20-period exponential moving average. The price briefly closed below the blue wave–as shown in the chart below–but underwent a sharper pullback later on a stronger buying demand.
COMPUSD bounces back off its 20-period MA. Source: TradingView.com
The pair continues upward in a parabolic bull run that started on August 2, 2020. It has surged by 80 percent from the session low already, meaning the latest pullback could be just an attempt to neutralize its overbought status.
An extended downside move now expects to test $195, $179, and $158 as their pullback targets. Meanwhile, a successful bounce-back could lead COMP up towards $212, $235, and $265.
