Is Axie Infinity Overheating? The price of AXS rose to a record high after rising 100% from the previous quarter

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AXS, the original token of Axie Infinity, a non-decryptable token (NFT) game built on top of the Ethereum blockchain, surged more than 100% in a quarterly time frame (QTD) to refresh a new record above $155.

However, the cryptocurrency is now risking to recoup part of its recent gains as a key technical indicator, called the Relative Strength Index (RSI), illuminates overbought conditions. In doing so, he might correct below $90 – a drop of about 40%.

A bearish forecast appears after studying the relationship between the price of AXS and its RSI readings. In detail, when the RSI rises above 70, it often pushes AXS either to sideways consolidation or later down.

But either way, the token ends up testing its 20-day EMA (the 20-day EMA; green wave in the chart below) as a temporary support level.

AXS/USD daily price chart showing its response to RSI readings above 70. Source: TradingView.com

For example, the RSI has closed above 70 three times since July 1, 2021, each time pushing the price to reach the 20-day moving average within 7-30 days. This made buying AXS against the overbought RSI reading a risky drag site for traders, increasing the potential for short-term losses.

As a result, the Axie Infinity token could go through a similar downtrend in the coming days/weeks, with its next downside target at $87. However, if the price goes further forward, as happened after the overbought signal in July, the downside AXS target could move to $90 or higher.

Is HODLING a better strategy?

The 20 day moving average has acted as a buying indicator for traders after corrections led by the RSI. In detail, traders decided to buy the dip in anticipation that AXS price will retest and close above its previous highs.

Therefore, it is clear that traders who did not sell their holdings of AXS during the price correction towards the 20-day EMA managed to make good paper profits – the Axie Infinity token has risen more than 2500% since July 1st.

The growing interest of AXS within the virtual world of Axie Infinity, called Lunicia, has emerged as one of the primary catalysts behind its demand among players and merchants. In detail, players maneuver colorful creatures called Axies to earn two types of tokens.

The first, known as Small Love Potions (SLP), is awarded for successful battles; It can be drained or reused to breed new axes. Meanwhile, the second token, AXS, can be earned by winning seasonal tournaments or selling Axies in the Axie Infinity Indoor Market.

As of Monday, Axie Infinity had 1.85 million active users, up more than 4,500% since April, with cumulative revenue rising to $815 million in the same period, according to Token Terminal. This made Sky Marvis, the company behind Axie Infinity, the world’s fifth most valuable video game company by market capitalization.

The best gaming companies in the world. Source: messari

Strong fundamentals boosted traders’ confidence in AXS, which explains its ability to bounce back every time after undergoing a sharp correction towards the 20 day EMA.

AXS staking service, DEX launch

The latest buying bout has also appeared on Axie Infinity Markets due to a new feature that allows AXS holders to participate in their tokens to earn returns. Since its launch on September 30, the staking feature has attracted over 12.44 million AXS tokens (~$1.88 billion at current rates).

AXS staking dashboard. Source: Axie Infinity

Staking actually takes the token supply out of circulation, which, in response to the increased demand for the asset, tends to push its prices higher.

Related: The massive airdrop and AXS catapult Axie Infinity to an all-new high

Meanwhile, Sky Mavis announced that it will launch a Decentralized Exchange (DEX) on the Ethereum Ronin-linked sidechain. By doing so, the company aims to ensure faster AXS and SLP liquidity for players during gameplay without having to rely on cross-chain bridges to purchase or exchange tokens.

The opinions and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.