AVAX has undeniably seen impressive price gains recently, with triple-digit percentage returns over the last month. However, cryptocurrency analyst Gerhard urges a healthy skepticism of this short-term momentum, given declining fundamentals for the Avalanche blockchain and questions around long-term tokenomics.
Declining Blockchain Fundamentals
While AVAX prices are spiking, actual usage and activity metrics for Avalanche paint a grimmer picture. Gerhard points out that the Total Value Locked (TVL) in Avalanche has dropped over 90% from its peak of $14 billion to just around $1 billion now. This divergence between rising prices and falling network utilization has Gerhard concerned about the rally’s sustainability.
Inflation Outpacing Adoption
In addition, Avalanche has an inflationary token model that could put negative pressure on AVAX’s price over time if new demand doesn’t outweigh the increasing token supply. Currently, there are 410 million AVAX tokens in circulation, but that number is expected to rise to 478 million in one year. Without matching adoption growth, inflation could hinder significant gains.
Limited Upside Against Leading Cryptos
Gerhard also questions how much more upside AVAX has relative to dominant cryptocurrency rivals Bitcoin and Ethereum. Despite already vastly outperforming both blue chips, AVAX appears priced for equivalence or superiority going forward, which Gerhard suggests is overly optimistic.
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Show more +Looming Downside Risks
Rather than further parabolic upside, Gerhard’s analysis uncovers sizable downside risks for AVAX investors. He estimates the potential price drop from current levels could be as high as 55-87% relative to Bitcoin based on historical precedents and AVAX’s overall crypto market share.
Momentum Outpacing Reality
In conclusion, Gerhard emphasizes that those buying AVAX at current prices are mostly speculating on momentum rather than underlying blockchain fundamentals and utility. Essentially, short-term hype has detached from longer-term reality when it comes to Avalanche. While betting on continued exuberance can pay off, it is an inherently risky venture as sentiment eventually reconnects with factual network development.
Overall, Gerhard delivers a sobering take on the recent AVAX frenzy by highlighting falling network usage, unresolved tokenomics issues, lofty relative valuations, and significant downside risks. For AVAX bulls, ignoring these warning signs may work for a time, but for prudent investors, exercising caution now likely avoids pain later. The expert analysis suggests there are more reasons to doubt than celebrate Avalanche’s rally at the moment.
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