Axie Infinity (AXS) has dropped by roughly 90% after peaking out at $172 in November 2021.
AXS's sharp correction has made it one of the worst performing digital assets among the top-ranking cryptocurrencies. Moreover, it could undergo further declines in the coming months, according to a mix of technical and fundamental catalysts listed below.
Low player count dampens AXS demand
To recap, AXS serves as a settlement token within the Axie Infinity's gaming ecosystem, allowing players to purchase native nonfungible tokens (NFT), a flurry of digital pets called "Axies."
It also acts as a work token that players can spend to breed new Axies.
New users that enter the Axie Infinity ecosystem need Axies to pit them in a battle against other Axies. When they win, the platform rewards them with another native token, called Smooth Love Potion (SLP) while winning larger tournaments grants them AXS.
As a result, old Axie Infinity players rely on new ones to maintain demand for Axies.
Otherwise, they could risk old players selling their SLP and AXS earnings in marketplaces (for example, crypto exchanges), thus adding downside pressure to their rates
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But when the valuations of Axie Infinity's native tokens drop, it also makes the game less appealing to new players, who would still need to pay for Axies to be able to earn lower-valued SLP and AXS units.
The Axie Infinity ecosystem has gone through the stages, as mentioned above, in 2022, with its player count dropping to 8,950 in June from 63,240 in January—an almost 85% decline, according to data provided by Dapp Radar. Interestingly, that coincides with AXS's 80% price drop in the same period.
Simultaneously, Axie Infinity's in-platform volume, measured after assessing its Ronin chain data, has dropped from $300 million in September 2021 to a mere $2.12 million in June 2022.
At the same time, the project's top executives have quietly changed their "play-to-earn" mission statement to "play-and-earn," with its new head of product, Philip La, admitting in his August 2021 post that "Axie Infinity first needs to be a game."
Inflation ramps up
Fresh inflation data has further dampened upside sentiments across the top-ranking cryptocurrencies, which, in one way or another, boosts AXS's bearish outlook.
Notably, the U.S. consumer price index (CPI) rose by an annual pace of 8.6% in May versus 8.3% in the previous month, heightening investors' fears that the Federal Reserve will be forced to hike interest rates aggressively in the coming months, which would push riskier assets lower across the board.
AXS dropped 7.5% after the report came out on June 10, and fell by another 7% on June 11 to reach its three-week low of $16.79. The prospect of lower cash liquidity, led by the Fed's hawkish policies, could result in more losses for the Axie Infinity token.
AXS price slips below key support
The slew of negative fundamentals has sent AXS's price below a key support level, which may lead to extended downside moves in the coming weeks.
AXS plunged below $18-$19 support range this week, which was instrumental in capping its downside attempts since the beginning of May. Also, testing the range as support had followed up with a circa 800% bull run between July 2021 and November 2021, as shown below.
Now, the path of least resistance for AXS looks skewed to the downside with the next downside target at around $9 by September 2022, more than 50% lower than today's price. Notably, the $9-level served as resistance during the April-June 2021 session.
Conversely, a bullish cue comes from AXS's potential "descending broadening wedge" (DBW) pattern on the weekly timeframe, confirmed by the token's fluctuation between two diverging, falling trendlines.
Traditional analysts consider DBW as a bullish reversal pattern, which, as a rule of technical analysis, resolves after the price breaks above the structure's upper trendline and rallies by as much as the pattern's maximum height, as shown in the chart below.
If the pattern is confirmed, AXS would rebound on the path toward $465 within an unspecific timeframe, nearly a 2,500% increase from today's price.
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