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Volatility has been calm in Tezos (XTZ) but traders are still hugging to a major support area.

Will the bears eventually be able to break lower, complete a classic bearish technical pattern and draw in more bears?

Here’s a chart that I’m looking at:

XTZ/USD: Daily

XTZ/USD Daily Crypto Chart
XTZ/USD Daily Crypto Chart

Tezos (XTZ) is the utility token for the blockchain (a smart contract platform that “self evolves”), and just like the rest of the crypto space, its price of the token has fallen dramatically over the past few months after making all-time highs around $9.00.

As we can see on the daily chart above of XTZ/USD, the market is now trading around the $4.00 handle, which has turned into a major support area through the month of December. But we can also see a lower ‘highs’ pattern, forming a descending triangle in the process.

This pattern tends to suggest that a downside break in the market may be around the corner, a scenario that we think has good odds if the current risk environment continues to lean risk averse.

If macro traders continue to price in high inflation expectations and a rising interest rate regime in the U.S., U.S. dollar strength may continue to take XTZ/USD regardless of Tezos’ fundamentals. Any signs of a global slowdown ahead (i.e., watch global sentiment surveys next week) would also likely bolster further risk-off vibes and U.S. dollar strength.

And speaking of fundamentals, while Tezos is making moves with new partnerships like with esports Team Vitality and Gap Inc., its network seems to be losing steam as daily transaction activity has fallen from an average of nearly $60M in November to below $40M in the last 30 days. Aside from the broad negative sentiment on crypto lately, the fierce competition between layer-1, smart contract blockchains may be a factor in Tezos’ declining network activity.

So, it’s a tough call on where this consolidation may lead, but right now, the odds seem to favor the bears with a strong price downtrend, declining network activity and a hard macro environment for crypto. If these conditions hold and the market sustains a break below the crucial $4.00 handle, XTZ/USD’s next move could take the market to the next swing low area around $2.50 in a few weeks.

We’ll be looking for that scenario to play out before considering a sell position, as well as consider a bullish play if the environment/Tezos news changes.  But what do you think? Is XTZ a buy or sell as the market consolidates? 

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.