Home CryptocurrencyAltcoin The data suggests that the Avalanche (AVAX) rally was buy the rumor, sell the news

The data suggests that the Avalanche (AVAX) rally was buy the rumor, sell the news

by SuperiorInvest

Avalanche (AVAX) came into the spotlight early in early 2023 with the addition of its blockchain Amazon Web Services (AWS) support cloud. However, empirical and on-chain analysis suggests that the surge in Avalanche prices is likely due to the broader cryptocurrency market, which is likely to end up with the rest of the market.

Are the Amazon Avalanche reports overblown?

While the integration with the world’s largest blockchain service is a positive move for Avalanche, the hype surrounding its implications may be overblown. Evidence is a similar move the Avalanche made in December 2022.

The Avalanche team was founded by a deal with Alibaba’s Cloud by the end of 2022. The Asian cloud service has a 6% share of the sector globally. However, the number of blockchain validators has remained consistent, meaning that few Alibaba Cloud users are willing to run an Avalanche node.

Number of avalanche validators. Source: Avax.net

AWS makes money from users willing to use blockchain nodes, which is probably why it keeps adding support for different blockchains. Amazon is supporting the Ethereum node from May 2021. The recent announcement of Amazon’s partnership could mislead some investors.

Evolution of the Avalanche ecosystem

Avalanche’s blockchain usage data is also not encouraging. Gas used on the blockchain fell sharply after the May 2021 crypto market crash and has not recovered since. The total value locked in the Avalanche DeFi ecosystem is near a two-year low 885 million dollarsin sixth place in comparable liquidity of other chains.

Gas used on the Avalanche C-chain and the DeFi Kingdoms subnet. Source: Avax.net

The project has had some success game subnet such as DeFi Kingdoms and Swimmer Network. While the growth of subnets improves the Avalanche ecosystem, it does not bring direct value to AVAX holders, as the security and tokenomics of the subnets can be independent of the primary Avalanche blockchain.

Avalanche validators only benefit from subnets if they rent security from an Avalanche validator or use the mainnet in the early stages to launch their project before moving to independent chains. Several promising game projects like Shrapnel and Ascenders are working towards this goal. Still, it remains to be seen whether they will bring enough activity and revenue to Avalanche’s validators.

AVAX exchanges flow data and technical analysis

Avalanche’s recent price increase is primarily driven by the liquidation chase for short orders in the futures market. Mint data shows that Avalanche’s permanent swap funding rate has remained negative since the FTX implosion in November. Crowded short positions allowed whale buyers to stop sellers.

Funding rates have returned to neutral territory after last week’s sharp rise in prices. It effectively drained the fuel that caused the current bull run.

Avalanche perpetual swap rate financing. Source: Coinglass

“Smart money” wallets identified by Nansen deposited $2.3 million worth of AVAX during that period. Additionally, venture funds and market makers including Jump Capital, Wintermute Trading and Longling added $1.3 million to the net inflow. The total inflow of AVAX into exchanges for the second week of January 2023 was $8.025 million.

When the price of Avalanche rose 40% in the second week of 2023, the exchange flow data saw a significant inflow, likely as investors started to sell, increasing the warning signs for buyers.

The ebb and flow of AVAX from crypto exchanges. Source: Nansen

Technically, a break above the 50-day EMA at $13.40 keeps alive the possibility of marking the 100-day EMA at $20.70 and the August 2022 peak at $31.45. However, the time for buyers to show their hands is running out.

The Moving Average Convergence Divergence (MACD) indicator is showing early signs of oversaturation, with buying volumes falling.

Daily price chart of AVAX/USD. Source: TradingView

In the AVAX/BTC pair, the move encountered resistance from the 0.000834 BTC support and resistance level, which is also where the 100-day EMA currently lies. If buyers fail to conquer this level, a drop towards 0.000642 BTC is expected with the possibility of reaching 0.000465 BTC.

Daily price chart of AVAX/BTC. Source: TradingView

Additionally, the broader market cap of altcoins (excluding Bitcoin) has already seen an upswing targets around its 100-day MA in the amount of 563 million dollars. If the positive momentum begins to cool in the niche market, AVAX’s uptrend is likely to reverse with it.

In general, Avalanche usage statistics have remained unchanged since the last quarter of 2022. Very little fundamental growth can be attributed to recent price increases. The project has the potential to grow and benefit from the blockchain gaming space in the future.

The views, thoughts and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading step involves risk and readers should do their own research when making decisions.

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