Inflation risks grapple the newly-launched ApeCoin as it paints a classic bearish reversal pattern.
A euphoric price rally by ApeCoin (APE) seen in mid-March appears to be exhausted already thanks to the coin’s 70% drop in valuation in the past two weeks — and it may fall further in April.
At the core of this bearish outlook is a rising wedge, a technical pattern that forms as the price consolidates upward inside a range defined by two converging ascending trendlines.
In a perfect scenario, rising wedges resolve into a bearish breakout, confirmed by a decisive drop below the lower trendline that typically takes the price as low as the maximum wedge’s height.
ApeCoin has been painting a very similar pattern since March 18, as shown in the chart below. The coin recently broke below its rising wedge’s lower trendline, bringing itself in proximity with the setup’s theoretical price target near $9, about 30% lower than April 1’s price.
APEUSD daily price chart featuring a ‘rising wedge’ setup. Source: TradingView
Meanwhile, a clear divergence between rising prices and falling volumes across the last two weeks also indicated a weakening upside momentum, raising the chances of a drop towards the wedge target, as discussed above.
The bearish setup emerges as markets continue to look for clues about APE’s utility in the nonfungible token (NFT) and metaverse sector.
To recap, Yuga Labs, the firm behind the popular Bored Ape Yacht Club (BAYC) NFT collection, minted 1 billion ApeCoin as the governance tokens of their new decentralized autonomous organization (DAO). Then they airdropped 10,000 APE to each BAYC NFT owner, amounting to 15% of the total supply.
Meanwhile, APE gained listing across some of the leading crypto exchanges, including FTX and Binance, on the same day, providing avenues for BAYC owners to liquidate their APE rewards instantly. As it happened, APE rose from nearly $1 to nearly $41 on its March 17 debut, but has since seen a strong correction.
Josh Ver, co-CEO of SparkWorld, a prediction platform for NFTs, noted that APE’s current valuation — still around 1,200% higher than its debut price on Binance — is a result of the “hype, excitement and exuberance” around Yuga Labs’ success as a “blue-chip” startup.
“Yuga Labs, the studio behind the collection, are a commercially viable business; last year, they saw over $127 million in revenue,” he explained, adding that “if ApeCoin holders received a share of these profits, then APE would hold considerable fundamental value.”
But Ben Lilly, a token economist at Jarvis Labs, raised concerns about ApeCoin’s inflationary model, which could weigh its valuation down in the future.
He said that 9.4 million APE would likely enter the market each month over the next year as Yuga Labs, the four BAYC Founders, and will be able to unlock their allocated tokens.
APE supply chart. Source: ChainPulse, Jarvis Labs
“This implies a need for about $132 million of monthly demand or $4.4 million per day that needs to enter the market to soak up new supply,” Lilly wrote, adding:
“With these supply unlocks and substantial inflation in the first year, it begs the question to the market… How will Yuga Labs, BAYC, the DAO and venture firms (a16z and Animoca) generate the needed demand? Is it even possible?
Protecting APE’s value is possible
But like Ver, Lilly suggests that Yuga Labs’ brand value could protect ApeCoin from the said inflationary risks, noting that the $4-billion startup could source better technology, artists, and resources that translates to higher potential asset values later if used wisely.
Related: NFT creator Yuga Labs raises $450M, bringing company valuation to $4B
For instance, Yuga Labs has already released the teaser video of its upcoming metaverse called “Otherside” that enables the crossover of the NFT world’s most popular collections, including CryptoPunks, with the BAYC.
See you on the Otherside in April. Powered by @apecoin pic.twitter.com/1cnSk1CjXS
— Yuga Labs (@yugalabs) March 19, 2022
“In that same line of thinking it should not be a surprise either if a more accessible NFT hits the market for use in the Otherside NFT metaverse,” wrote Lilly, adding that it may bring more users to “access the virtual world,” thus growing APE’s marketshare in tandem.
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