ATOM price is reaching for the Cosmos, but why?

Like all altcoins, ATOM price fell as $550 million of BTC, ETH and altcoin positions were liquidated last week. Which is exactly why its 35% rebound is raising eyebrows.

As a market crash takes place, assets become oversold and typically there’s an “oversold bounce,” “return to mean,” “mean reversion,” or some price snapback to the bottom of the pre-crash range. 

Afterward, the asset under study either consolidates, continues the downtrend, or returns to the bullish uptrend if the downside catalyst was not significant enough to break the market structure. That’s all kind of basic trading 101.

This week Cosmos (ATOM) price appears to be following this path and the altcoin is showing a bit of strength with a 35% gain since Aug. 22, but why?

Depending on how you look at it, and technical analysis is by all means a subjective process, ATOM price is either in an ascending channel or one could say a rounding bottom pattern is present with price close to breaking above the neckline.

ATOM daily chart. Source: Tradingview

Resistance above $13 (the horizontal black line in the bottom chart) is currently close to being tested and with sufficient volume and “stability” from the wider crypto-market, the price could be en-route to the 200-day moving average at $17.20.

Of course, if Bitcoin goes belly up at the daily close, or hawkish talk starts to leak out of Jackson Hole, the whole bullish structure for ATOM is likely kaput. So if one is trading, prepare and size accordingly.

If price manages to reach the $17 zone, without skipping a beat, your favorite technical analysts will then say something along the lines of:

“If ATOM price manages to flip the 200-MA to support, continuation to the $27 level could occur.”

Surely you’ve seen that on crypto Twitter lately, but let me find an example.

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So, it’s only up, sir?

What traders need to find out is whether ATOM’s upside momentum is simply the result of a “stable” market and Bitcoin and Ether trading in a relatively predictable range, or is there some Cosmos-related set of fundamentals which validate the current move and warrant opening a swing long?

Apparently, the analysts at VanEck, a multi-billion dollar asset management fund, think ATOM price will do a 160x move by 2030.

Hard to believe isn’t it and perhaps a little bit far fetched, but see for yourself. Here’s what they said:

Based on our discounted cash flow analysis of potential Cosmos ecosystem value in 2030, we arrived at a $140 price target for the ATOM token, with downside to $1. With ATOM’s price at $10 as of 8/2/2022, we like the 14-1 odds presented and believe this is a buying opportunity for the token.

Let’s take a brief look at their rationale for $140 ATOM.

Product to market fit and a secure cross-chain bridge could thrive post Merge

VanEck analysts Patrick Bush and Matthew Sigel cite Cosmos’ Inter-Blockchain Communication Protocol (IBC) as a bullish catalyst primarily because “separate Cosmos SDK blockchains can open up communication channels to exchange data, messages, tokens and other digital assets.”

According to the analysts, “IBC architecture then enables each blockchain to perform activities on another blockchain without relying upon a trusted third party.” And it is this “permissionless and trustless” aspect of IBC which:

...solves many of the issues presented by trusted bridging solutions that have led to over $1B in funds stolen through bridge hacks.

The analysts also cite the Cosmos SDK, clear product to market fit and strong token value accrual being partially influenced by staking and a soon to launch “interchain security” mechanism by the Cosmos Hub as reasons for their long-term bullish perspective.

What’s happening on the development side and roadmap?

ATOM is set to become a primary collateral asset in three new stablecoins that will launch within the Cosmos ecosystem.

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Minting stablecoins will require the “lock” or depositing of ATOM tokens and according to the Cosmos Hub 2.0 roadmap, liquid staking is also expected to roll out in H2 2022.

ATOM roadmap details. Source: Cosmos Hub

During DeFi Summer and the post-summer revival, stablecoin issuance and liquid staking were two phenomena that boosted TVL for DeFi-oriented blockchains and while questionable and somewhat ponzi-esque, liquid staking adds buy pressure to a protocol’s native token, while also equipping it with utility within various aspects of the lending, borrowing and leveraging wings of decentralized finance.

Staked percentage of ATOM's circulating supply. Source: Staking Rewards

Current data from StakingRewards shows that 65.84% of issued ATOM tokens are staked for a minimum yield of 17.85% and additional data from the analytics provider shows a near 189% rise in the number of ATOM stakers over the past 30-days.

30-day increase in ATOM stakers. Source: Staking Rewards

The above appears to align with the thesis that liquid staking and stablecoin minting will soon launch. Despite the confluence of these bullish indicators, it’s important to remember that asset prices do not exist in a vacuum. While there may be a handful of bullish signals flashing from ATOM, the wider cryptocurrency market (including BTC) hangs at a precipice.

No-one is sure that the elusive “bottom” is in and cryptocurrencies are risk-off assets that exist in a macroeconomic climate where most institutional and retail investors are opposed to risk. The value accrual propositions for ATOM are strong and staking, stablecoin minting and liquid staking proved to be powerful bullish catalysts for DeFi tokens and altcoins in the past. But everything works until it doesn't, right?

Remember Waves, Terra (LUNA) and Celsius (CEL)? All experimented with liquid staking, lending, asset collateralization and stablecoins, yet today they’re belly up from a value perspective.

Of course Cosmos isn’t LUNA, Waves or CEL. It’s a wide-ranging, cross-chain equipped ecosystem with a $12.6 billion market capitalization, according to data from CoinGecko.