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What’s Behind Cosmos’ Recent Rally and Where Will ATOM Go Next?

Last Updated December 13, 2023 1:44 PM
Nikola Lazic
Last Updated December 13, 2023 1:44 PM

Key Takeaways

  • ATOM is up by 34% in December so far.
  • The token inflation rate lies behind the recent rise.
  • Chart analysis points out early signs of weakness.

Since the start of December, the price of ATOM has been on the rise, increasing by 34%. It came up to $12.50 at its yesterday’s high and is now trading around $11, but this recent surge is likely to continue due to some of the fundamental developments in the Cosmos Ecosystem 

What is behind the surge, and how will the token perform as the new year approaches? 

Driving Factors 

ATOM drew attention to itself, as did the broader Cosmos Ecosystem, when Osmosis announced a merger with UX Chain earlier this month. UX Chain, previously known as Umee, is a prominent cross-chain DeFi hub, while Osmosis is a unique inter-blockchain communication protocol.

Their merger strategically consolidates their dominant positions in the Cosmos ecosystem and strengthens their links. As a result, the Osmosis token, OSMO, spiked by 60% from December 5, when this announcement was released.

The second and most impactful driving factor behind ATOM’s rise is direct. The Cosmos Hub governance has approved a rate cut for the annual inflation of its native token, ATOM, reducing it from 14% to 10%.

The rationale behind the proposal emphasized that ATOM’s current high inflation rate was excessive for maintaining network security and could be detrimental to its price stability and usage in decentralized finance (DeFi) applications.

ATOM serves multiple roles within the Cosmos network’s ecosystem, including staking, governance, and transaction fees. This is why this proposal greatly impacts its tokenomics and the price.

ATOM Price Analysis 

After finishing its decline at $6.20 on October 19, the price of ATOM started an upturn. It saw an increase of 70% to nearly $11 on November 12, but the momentum stopped shortly after a breakout above the descending resistance level. 

Price reached a new high today
Breakout momentum maintained

The price underwent a retracement and retested the broken resistance for support, reaching $8.20 on November 22. It promptly rebounded as support was evident at this intersection with the horizontal support that had held for two previous macro lows.

This recent uptrend sustains the breakout momentum, continuing a larger uptrend from October 19. While signs of struggle are emerging, illustrated by a larger red candle today, it’s essential to await the day’s closure.

The price has approached the 0.5 Fibonacci extension level of the previous rise since June last year. This suggests a probable corrective move to the downside before resuming its upward trajectory. This potential correction is also indicated by the RSI indicator, which signals a likely overextension as it approaches the overbought zone, currently at 70%.

A correction would seem likely
The uptrend is showing signs of struggle

Taking a closer examination of the 4-hour chart reveals that in the event of a downward ABC correction, the probable price target would be in the $8.40 area, aligning with the 0.618 Fibonacci retracement level. It’s important to note that this assumption is pending validation from the ongoing price decline.

Should the struggle persist, mirroring the challenges observed in the previous advancement, the probability of this correction intensifying becomes more apparent. However, once the correction concludes, there’s a positive outlook for the long-term price trajectory of ATOM.

Disclaimer

Please note that the contents of this article are not financial or investing advice. The information provided in this article is the author’s opinion only and should not be considered as offering trading or investing recommendations. We do not make any warranties about the completeness, reliability and accuracy of this information. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. Any investor, trader, or regular crypto users should research multiple viewpoints and be familiar with all local regulations before committing to an investment.

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