Avalanche’s incredible network growth does little in limiting AVAX price’s 40% crash risks

YEREVAN (CoinChapter.com) — Avalanche’s network growth in Q1/2022 was remarkable. But that has not helped pent up demand for its native token, AVAX, so far.

More usage and revenue

Avalanche experienced continued uptrends in its blockchain usage, with its active addresses reaching a record high at this year’s beginning. Interestingly, the Ethereum rival had more users in the first week of January 2022 than in October 2021, data collected by research firm Messari shows.

“The network averaged around 70,000 daily active addresses during Q4 and reached a stable range with an average of 92,000 during Q1,”

their report noted.

The growth occurred majorly due to Avalanche’s deeper foray into decentralized finance (DeFi), a class of finance that removes intermediaries between two parties with a distributed governance structure, and the launch of new subnets on its popular GameFi app, including DeFi Kingdoms Crystalvale and Crabada.

Subnets are a scaling strategy that allows Avalanche to run parallel blockchains, thus splitting up the network traffic to boost performance and lower transaction fees.

Related: Stellar beats Bitcoin, Ethereum in transaction speeds — report

Meanwhile, Avalanche also attracted users from the emerging nonfungible token (NFT) sector, with its market capitalization atop the native blockchain surpassing $110 million in Q1.

As Avalanche’s network usage grew, revenue grew by over 7.2% in Q1. Also, as a percentage of AVAX’s fully diluted capitalization, its cumulative revenue grew 20 times from a year ago.

James Trautman, a researcher at Messari, noted that an increase in revenue should bolster AVAX’s market valuation upward, explaining that Avalanche burns 100% of the fees from its network’s circulating supply.

“This drives value to all token holders through increased scarcity rather than compounding the balances of validators and delegators,” he added, albeit noting:

“The question is just how statistically significant the spread between revenue and market value is. With that in mind, as fundamental value (as opposed to speculative value) becomes a more substantial part of market value, a strong correlation between revenue and market value should theoretically exist.”

Avalanche faces bearish pressure — technically

AVAX has reacted negligibly to Avalanche’s revenue growth and has rather tailed trends in the broader crypto market, led by the Federal Reserve’s quantitative tightening risks and the ongoing Russia-Ukraine geopolitical conflicts.

As a result, AVAX finished Q1 at a near 15% loss. In addition, the Avalanche token now sees a further downtrend based on the ‘bear flag’ setup below.

In detail, bear flags are bearish continuation patterns that appear when the price consolidates upward during a strong downtrend. However, it eventually breaks out of the ascending range — to the downside — to eye an extended correction. The price theoretically targets a level at length equal to the size of the previous downside move, also called the “flagpole.”

That puts AVAX’s price en route to $45 sometimes in Q2, down about 40% from today’s price.