AVAX: Beginning of a bull run or another bull trap

The tenth largest cryptocurrency by market capitalization has had a very good week. In the past week alone, Avalanche is up more than 20-25%, reaching a total market cap of nearly $23 billion according to CoinMarketCap at press time. Even in the last 24 hours, it has increased by almost 10%. That raises a lot of eyebrows. And it also raises the question of whether AVAX will be a profitable purchase in the future?

Technically, one can agree that AVAX is seeing broader bearishness on the price charts, with the price trapped in a bearish triangle. Interestingly, AVAX showed an impressive recovery from March 15. However, it is still within the wider descending triangle. So suggesting that maybe this is just a neat little bull trap.

AVAX/USDT | Source: Tradingview

A closer look at AVAX’s past rallies and subsequent dips since November 2021 and the RSI from the same time frame reveals a striking correlation. Prices have created lower highs, creating the bearish triangle – and each of those minor rallies stalled at 60-65 levels on the RSI (yellow line).

Based on that precedent, with the current value of RSI at 61, it can be expected to fall very soon. On-chain stats for this particular coin throw out mixed signals. According to data from messari, the market cap for Avalanche recently saw a major spike, which bodes well for the near term. It surpassed all other rallies from before. That suggests some strength in the market going forward.

AVAX Marketcap Dominance | Source: messari

Furthermore, data from Avascan.info shows that AVAX’s burning costs have steadily increased, which is a positive sign. Burning tokens permanently removes them from the circulating supply and effectively makes the underlying assets deflationary.

This mainly happens because it directly affects the demand and supply dynamics of the currency.

Burnt feed | Source: Avascan.info

Despite this, a few other indications suggest that AVAX is not yet able to go long. AVAX’s Sharpe ratio has been declining for the past few months and is currently hovering around 0.73. In fact, by the end of January, it had even touched the -6 mark – clearly indicating that long positions at these levels can be deadly.

Sharpe ratio | Source: messari

In addition, data from Holiness also shows that AVAX development activity has been stagnant for some time, which is not a healthy sign for the currency’s immediate future price action.

So overall, despite showing a lot of promise, AVAX has fallen into the broader market’s ill-feeling that started last December and continues to this day. So all things considered, this could be a possible bull trap and long traders might want to consider staying away from this coin for now.

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