Axie Infinity (AXS) is down about 90% since peaking at $172 in November 2021.

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The sharp correction in AXS has made it one of the worst digital assets among the top-rated cryptocurrencies. Moreover, it could be subject to further declines in the coming months, depending on the mix of technical and fundamental catalysts listed below.

Low player count reduces demand for AXS

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As a reminder, AXS serves as a settlement token in the Axie Infinity gaming ecosystem, allowing players to purchase native non-fungible tokens (NFTs), a variety of digital pets called “Axies.”

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It also acts as a work token that players can spend on breeding new axes.

New users who enter the Axie Infinity ecosystem need Axies to take on other Axies. When they win, the platform rewards them with another native token called Smooth Love Potion (SLP), while winning larger tournaments gives them AXS.

Working diagram of Axie Infinity. Source: Decentralized.com

As a result, old Axie Infinity players rely on new ones to keep up demand for Axies.

Otherwise, they may risk old players selling their SLP and AXS earnings on marketplaces (like crypto exchanges), adding to the downward pressure on their bets.

But when the value of native Axie Infinity tokens drops, it also makes the game less attractive to new players who will still have to pay for Axies in order to be able to earn cheaper units of SLP and AXS.

The Axie Infinity ecosystem went through the stages, as mentioned above, in 2022, when the number of players fell to 8,950 in June from 63,240 in January – a drop of almost 85%, according to the data. data courtesy of Dapp Radar. Interestingly, this coincides with the 80% drop in AXS prices over the same period.

Axie Infinity statistics from March 2021. Source: Dapp Radar.

At the same time, Axie Infinity’s platform sales, measured after evaluating Ronin network data, fell from $300 million in September 2021 to just $2.12 million in June 2022.

At the same time, the project’s top executives have quietly changed their “play to earn” mission to “play to earn”, with new head of product Philip Lah acknowledging in an August 2021 post that “Axie Infinity must be a game first and foremost” .

Inflation is on the rise

Fresh data on inflation further weakened the positive sentiment in the leading cryptocurrencies, which in one way or another reinforces the bearish forecast for AXS.

Notably, the U.S. Consumer Price Index (CPI) rose at an annualized rate of 8.6% in May from 8.3% in the previous month, adding to investor fears that the Federal Reserve will be forced to aggressively raise interest rates in the coming months. which will lead to a decrease in risky assets across the board.

Daily chart of AXS/USD versus BTC/USD versus SPX. Source: Trading View

AXS fell 7.5% after the release of the report on June 10 and another 7% on June 11, hitting a three-week low of $16.79. The prospect of declining monetary liquidity driven by the Fed’s hawkish policy could result in big losses for the Axie Infinity token.

AXS Price Drops Below Key Support

Due to a host of negative fundamentals, the price of AXS has fallen below a key support level, which could lead to an extended downward move in the coming weeks.

The AXS fell below the $18-$19 support range this week, which has been instrumental in limiting its downside attempts since early May. In addition, range testing as support was followed by an approximately 800% bullish rally between July 2021 and November 2021 as shown below.

Weekly AXS/USD chart. Source: Trading View

The path of least resistance for AXS now looks skewed to the downside with the next downside target at around $9 by September 2022, more than 50% below today’s price. Notably, the $9 level served as resistance during the April-June 2021 session.

Conversely, a bullish signal comes from a potential AXS “falling expanding wedge” (DBW) pattern on the weekly timeframe, as evidenced by the token’s swings between two divergent, falling trendlines.

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Traditional analysts view DBW as a bullish reversal pattern that, as a technical analysis rule, resolves after the price breaks the upper trend line of the structure and rises to the maximum height of the pattern, as shown in the chart below.

Weekly AXS/USD price chart with a falling widening wedge setup. Source: Trading View

If the pattern is confirmed, AXS will recover on its way to $465 over an indefinite period of time, almost 2500% more than today’s price.

The views and opinions expressed here are solely those of the author and do not necessarily reflect those of Cryptooshala.com. Every investment and trading step involves risk, you should do your own research when making a decision.