A euphoric price rally by ApeCoin (APE) seen in mid-March already seems exhausted thanks to the coin’s 70% drop in value over the past two weeks – and it could fall further in April.
At the heart of this bearish outlook is a rising wedge, a technical pattern that forms as price consolidates upwards within a range defined by two converging rising trendlines.
In a perfect scenario, rising wedges dissolve into a bearish breakout, confirmed by a decisive drop below the lower trendline that typically makes the price as low as the wedge’s maximum height.
ApeCoin has been painting a very similar pattern since March 18, as shown in the chart below. The coin recently broke below the lower trendline of its rising wedge, bringing it close to the setup’s theoretical price target near $9, about 30% lower than today’s price.
APEUSD daily price chart with a rising wedge setup. Source: TradingView
Meanwhile, a clear difference between rising prices and falling volumes over the past two weeks also signaled weakening upward momentum, increasing the likelihood of a decline towards the wedge target discussed above.
Inflationary risks
The bearish setup is emerging as markets continue to search for clues as to the usefulness of APE in the nonfungible token (NFT) and metaverse sector.
In summary, Yuga Labs, the company behind the popular Bored Ape Yacht Club (BAYC) NFT collection, minted 1 billion ApeCoin as governance tokens of their new Decentralized Autonomous Organization (DAO). They then dropped 10,000 APE to each BAYC NFT owner, representing 15% of the total supply.
Meanwhile, APE was listed on some of the leading crypto exchanges including FTX and Binance on the same day, providing opportunities for BAYC owners to immediately liquidate their APE rewards. Coincidentally, APE rose from nearly $1 to nearly $41 on its March 17 debut, but has since undergone a strong correction.
Josh Ver, co-CEO of SparkWorld – a forecasting platform for NFTs, noted that APE’s current valuation – still about 1,200% higher than its debut price on Binance – is the result of the “hype, excitement and exuberance” surrounding Yuga Labs ‘ success as a “blue-chip” startup
“Yuga Labs, the studio behind the collection, is a commercially viable company; last year they saw over $127 million in revenue,” he explained, adding that “if ApeCoin holders received a portion of these profits, APE would have considerable fundamental value.”
But Ben Lilly, a token economist at Jarvis Labs, was concerned about ApeCoin’s inflation model that could weigh on valuation in the future.
He said 9.4 million APE will likely enter the market every month over the next year as Yuga Labs, the four BAYC founders, and be able to unlock their allocated tokens.
APE supply chart. Source: ChainPulse, Jarvis Labs
“This implies a need for about $132 million in monthly demand or $4.4 million per day to hit the market to absorb new supply,” said Lilly. wroteadding:
“With this opening up of supply and substantial inflation in the first year, it raises demand for the market… How will Yuga Labs, BAYC, the DAO and venture firms (a16z and Animoca) generate the needed demand? it even possible?
Protecting the value of APE is possible
But like Ver, Lilly suggests that Yuga Labs’ brand equity could protect ApeCoin from said inflation risks, noting that the $4 billion startup could get better technology, artists and resources that later translate into higher potential asset values if wise. used.
Related: NFT maker Yuga Labs raises $450 million, pushing company valuation to $4 billion
For example, Yuga Labs has already released the teaser video of its upcoming metaverse called “Otherside”, which allows the crossover of the most popular NFT collections in the world, including CryptoPunks, with the BAYC.
See you at the Overkant in April. Driven by @apecoin pic.twitter.com/1cnSk1CjXS
— Yuga Labs (@yugalabs) March 19, 2022
“Similarly, it should also come as no surprise if a more accessible NFT comes to market for use in the Otherside NFT metaverse,” wrote Lilly, adding that it could bring more users to “access the virtual world”, thus increasing APE’s market share together.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Coin-Crypto.com. Every investment and trading move involves risks, you should do your own research when making a decision.