Volatility has calmed down Tezos (XTZ) But traders are still hugging in a key area of support.
Eventually, will the bears be able to break out to the downside, complete a classic bearish technical pattern, and attract more bears?
Tezos (XTZ) is the utility token for the blockchain (a smart contract platform that “self-develops”), and just like the rest of the crypto space, the token’s price has fallen dramatically in recent months after hitting all-time highs around $9.00.
As we can see on the daily XTZ/USD chart above, the market is now trading around the $4.00 level, which has become a key support area throughout December. But we can also see a lower “high” pattern forming a descending triangle in the process.
This pattern tends to suggest that downward movement in the market could be imminent, a scenario which we believe has a good chance if the current risk environment remains risk-off.
If macro traders continue to price in high inflation expectations and a rising interest rate regime in the US, US dollar strength could continue to weaken XTZ/USD regardless of Tezos fundamentals. Any signs of an imminent global slowdown (ie look at global sentiment polls next week) would also likely add to further risk-off sentiment and US dollar strength.
Speaking of fundamentals, while Tezos makes strides with new partnerships like Esports Team Vitality and Gap Inc., its network seems to be losing steam as daily transaction activity dropped to below $40 million in November from an average of nearly $60 million in November has fallen the last 30 days. Aside from the broad negative sentiment towards crypto lately, fierce competition between layer 1 smart contract blockchains could be a factor in Tezos’ declining network activity.
So it’s a tough question as to where this consolidation might go, but for now the odds seem to be in place for the bears with a strong price downtrend, dwindling network activity and a tough macro environment for crypto. If these conditions hold and the market sustains a break below the crucial $4.00 level, XTZ/USD’s next move could take the market to the next swing low area around $2.50 in a couple of weeks.
We will be on the lookout for this scenario before considering a short position, as well as consider a bullish play if the environmental/Tezos news changes. But what do you think? is XTZ a buy or sell when the market consolidates?
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