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The decentralized financial or DeFi market has seen a steep correction in the last 12 hours as Bitcoin (BTC) was unable to break the USD 41,000 level.

Meanwhile, analysts say the Profits from large DeFi tokens flow back to Bitcoinalthough the DeFi market is still lagging despite BTC’s recovery in the past week.

1-hour candle DeFi index (Binance). Source: TradingView.com

So what’s next for the DeFi market?

Both large blue chip DeFi tokens and small market cap cryptocurrencies have struggled to recover against Bitcoin over the weekend.

Typical DeFi bluechip assets include Aave (AAVE), SushiSwap (SUSHI), Uniswap (UNI), Maker (MKR), Compound (COMP) and Synthetix (SNX).

Major DeFi tokens with slightly smaller market caps are Alpha Finance (ALPHA), Yearn.finance (YFI) and 0x (ZRX).

The main reason behind the correction of the DeFi market is that profits from DeFi tokens flowed to Bitcoin when BTC started to withdraw.

This trend added to selling pressure on DeFi tokens, especially as the Bitcoin / Ether (ETH) pair has seen momentary weakness in the past two days.

However, the cryptocurrency market is moving fast and therefore market dynamics may change rapidly in the coming days, especially with the launch of CME Ether futures on Monday.

At the same time, a new DeFi rally could be sparked as the price of Bitcoin this time round neatly above $ 40,000, consolidating between $ 41,000 and $ 42,000, its all-time high.

For this to happen, Ether would need to catch up with Bitcoin and regain momentum above USD 1,700 in the near term. For now, ETH is lagging behind Bitcoin, with the ETH / BTC pair struggling to recover.

Whether ETH reclaims $ 1,700 as a support area would likely be the single most important factor determining the trajectory of the DeFi market for the foreseeable future.

ETH / BTC 1-hour candle price chart (Binance). Source: TradingView.com

Could Bitcoin Rise to a New Record?

Puru Saxena, an investor and retired money manager, said if Bitcoin goes above $ 40,000 again, it would invalidate the bearish scenario. He said:

Bitcoin is back above $ 40,000 and while it still hasn’t hit its ATH, unlike the previous cycle, it hasn’t completely broken down either. If $ BTC closes above its January high, that means my estimate of the price action was WRONG and the bulls were right. “

Exchange heatmaps, especially Binance’s order book, show large sales walls at USD 41,000 and USD 42,000. As such, like Bitcoin claims back $ 40,000 and makes its way to $ 41,000, it would confirm that a bullish market structure is still intact.

If Bitcoin gains momentum again and since the DeFi index has not broken its parabolic structure, a continuation of the rally is more likely than a steep correction.

Bluechip DeFi’s assets have already begun to recover to its daily opening on February 7, with AAVE, SNX and ALPHA showing strength.

However, it would be crucial for the DeFi index to rebound above 2,080 in the near term to maintain its bullish market structure, which would require a 4% rally.