EIGEN has formed a bullish pattern, but two risks remain

EigenLayer’s token continued its strong recovery as investors bought the dip following last week’s airdrop.

EIGEN is unlocked and TVL is withdrawn

The EigenLayer (EIGEN) token rebounded to $3.86, its highest level since October 2nd and 26% above its all-time low.

EIGEN’s recovery comes after the founder announced that the network was focusing on Web3 applications after the airdrop. This is important because EigenLayer does not have a consumer-facing application. Instead, AltLayer secures a variety of actively verified services such as Ethos and Lagrange.

The backlash came after a hacker stole 1,673,645 tokens worth over $6.8 million. The hacker moved these tokens through a decentralized exchange platform and then transferred the stablecoins to centralized exchanges.

Community Update:

In an isolated incident this morning, an email thread containing an investor taking custody of tokens was compromised by a malicious attacker.

As a result, 1,673,645 EIGEN tokens were mistakenly transferred to the attacker’s address. Attacker…

— EigenLayer (@eigenlayer) October 4, 2024

EIGEN token holders face two significant risks. First, there is a risk of dilution as EigenLayer has 187 million tokens in circulation versus a maximum limit of 1.6 billion tokens.

According to the developers, the network will unlock and distribute 67 million tokens (4% of the initial offering) in the first year. These unlocks will occur every Tuesday for the next 12 months, with 3% going to Ethereum and liquid staking token stakers. 1% of tokens will go to EIGEN stakers and operators.

Token unlocks are generally bearish because they increase the number of tokens in circulation and weaken existing holders.

The second risk is that demand for shares will decrease again. According to DeFi Llama, EigenLayer’s total value locked fell from $20 billion at the beginning of this year to $10.7 billion. In terms of Ethereum, the network is securing 4.43 million Ethereum, down from the year-to-date high of 5.34 million Ethereum.

One possible reason for this is that the Ethereum (ETH) staking market cap has fallen over the past few weeks. According to StakingRewards, it fell by almost 8% in the last 24 hours, falling to $83 billion.

EIGEN creates an inverse H&S pattern EIGEN chart by TradingView

On the hourly chart, the EIGEN token dropped to $3.04 on October 6 and then rebounded to $3.8, its highest point since October 2.

It broke above the 25-period moving average and, most importantly, formed a reverse bullish and shoulder formation. In price action analysis, this is one of the most bullish signals in the market.

Therefore, there is a chance that the EigenLayer token will bounce back and possibly retest its all-time high of $4.58, up 23% from the current level.