Axie Infinity (AXS) is down roughly 90% after hitting a high of $172 in November 2021.
AXS’s sharp correction has made it one of the worst performing digital assets among major cryptocurrencies. In addition, it could suffer further declines in the coming months, depending on a mix of technical and fundamental catalysts that we will discuss below.
A low number of players means a low demand for AXS
As a quick refresher, AXS serves as a payment token within the Axie Infinity game ecosystem, allowing players to purchase non-fungible tokens (NFTs), in this case the digital pets we all know as “Axies.”
It also acts as a utility token that players can spend to breed new Axies.
New users entering the Axie Infinity ecosystem need 3 Axies to take on other Axies. When they win, the platform rewards them with another native token, called Smooth Love Potion (SLP) while winning bigger tournaments earns them AXS.
Consequently, old Axie Infinity players rely on new ones to keep up the demand for Axies.
Otherwise, they could risk former players selling their SLP and AXS earnings on the markets (e.g. cryptocurrency exchanges), thus adding downward pressure to their prices.
But when native Axie Infinity token prices go down, it also makes the game less attractive to new players, who would still need to buy 3 Axies in order to earn SLP and AXS, only now they would be worth less.
The Axie Infinity ecosystem has gone through stages, as mentioned above, in 2022, with its player count falling to 8,950 in June from 63,240 in January, a drop of almost 85%, according to data provided by Dapp Radar. Interestingly, this coincides with the 80% drop in the price of AXS in the same period.
Simultaneously, Axie Infinity’s platform volume, measured by analyzing data from its Ronin chain, has dropped from $300 million in September 2021 to just $2.12 million in June 2022.
At the same time, the project’s developers have quietly changed their mission statement from “play-to-earn” to “play-and-earn,” with their new product manager Philip La admitting in an August post 2021 that “Axie Infinity needs to be a game first.”
Axie’s problem is that it’s always been a speculative tool wrapped in rhetoric about fun and community. The developers want it to go back to being just a game, when most players never saw it as a game in the first place. When the earning stops, the playing stops. 12/12
— Joshua Brustein (@joshuabrustein) June 10, 2022
Inflation rising
New inflation data has further curbed bullish bets on major cryptocurrencies, which, one way or another, fuels the bearish outlook for AXS.
In particular, the US consumer price index (CPI) rose at an annual rate of 8.6% in May, compared to 8.3% the previous month, accentuating investor fears that the Federal Reserve will be forced to raise interest rates aggressively in the coming months, which would push risky assets down across the board.
AXS fell 7.5% after the release of the report on June 10, and dropped another 7% on June 11 to hit a three-week low of $16.79. The prospect of less liquidity, led by the Fed’s strict policies, could lead to further losses for the Axie Infinity token.
AXS price falls below a key support
The series of negative fundamentals has sent AXS price below a key support level, which may lead to extended bearish moves in the coming weeks.
AXS tumbled below the $18-$19 support range this week, which was instrumental in curbing its bearish attempts since early May. Furthermore, the drop below the range had followed a bull run of around 800% between July 2021 and November 2021, as shown below.
Now, the path of least resistance for AXS looks skewed to the downside, with the next downside target around $9 by mid-Sep 2022, more than 50% below current price. In particular, the $9 level served as resistance during the April-June 2021 session.
Conversely, a bullish signal comes from the potential AXS “Down Widening Wedge” (DBW) pattern on the weekly time frame, confirmed by the token’s fluctuation between two diverging and descending trend lines.
Traditional analysts consider a descending broadening wedge to be a bullish reversal pattern that, as a rule of technical analysis, resolves after price breaks above the upper trend line of the structure and rises as high as the maximum height. of the pattern, as shown in the graph below.
If the setup is confirmed, AXS would bounce in the process towards $465 in an indeterminate time frame, which would mean an increase of almost 2,500% from the current price.
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