Avalanche’s Network Activity Declines: AVAX sentiments bearish

• Core Avalanche ecosystem metrics have slumped since the Inscriptions frenzy died down.
• Avalanche’s AVAX price stays in the green with future upgrades poised to determine its fate.

Avalanche (AVAX), a decentralized open-source Proof-of-Stake blockchain, has recently experienced a notable decline in network activity, triggering a shift in market sentiment toward a bearish outlook on the cryptocurrency. 

Avalanche’s Declining Network Activity

According to recent data posted by AVAX Daily on social platform X, Avalanche’s Contract Chain (C-chain), primarily designed for executing smart contracts, witnessed a notable drop in transaction volume over the past week. 

The cumulative total of transactions processed on the C-chain amounted to 7.66 million, reflecting a 16.88% decrease compared to the previous week. Additionally, gas usage, which correlates with transaction complexity, decreased by 2.74% over the same period.

The decline in network activity indicates reduced engagement with Avalanche-based Decentralized Applications (dApps), particularly evident in the sharp decrease in daily transactions since the Inscriptions frenzy in December. During that period, Avalanche recorded over 5 million transactions between December 15th and 25th. However, daily transactions have since plummeted, reaching as low as 200,000 on February 6th.

One important feature of Avalanche’s ecosystem is its deflationary mechanism, which burns all transaction fees collected, effectively reducing the circulating quantity of AVAX. With fewer transactions over the last week, the deflationary pressure on AVAX has diminished, likely contributing to the 3.3% monthly drop in the crypto’s price, according to CoinMarketCap’s data.

Market data from Coinglass also indicates a decline in speculative activity surrounding AVAX, with a decrease in Open Interest (OI) in AVAX Futures contracts by nearly 5% compared to the previous week. This decline in OI, coupled with a drop in spot price, reflects a bearish sentiment among investors, further amplified by an increase in short positions relative to long positions.

Furthermore, a broader decline in activity is evident across Avalanche’s decentralized exchanges (DEX) and its NFT ecosystem. NFT sales on Avalanche experienced a 12.5% decline over the past week, suggesting a waning interest in blue-chip NFT collections despite their prominence on the network. This trend highlights the challenge of attracting users to NFT collections within the Avalanche ecosystem.

Upcoming Events in Avalanche’s Network

Despite the current decline, Avalanche anticipates two major events this month. The Durango upgrade on a testnet, slated for February 13th, is expected to improve network performance. 

Additionally, on February 22nd, 9.54 million AVAX tokens will be released, accounting for 2.60% of Avalanche’s current circulating supply. Investors are eagerly watching these events since they may have an impact on AVAX’s price and circulating supply, similar to prior token unlocks in November.

The cryptocurrency’s performance in the coming weeks will likely be influenced by the outcomes of the Durango upgrade and the upcoming token unlock, as well as broader market sentiment towards cryptocurrencies. At the time of writing, AVAX is trading at $36.09, marking a 2.26% increase in the past 24 hours, with a market capitalization of $13.2 billion.

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