Avalanche (AVAX) has been experiencing mixed signals recently, with notable growth in transaction activity but a concerning decline in liquidity. After hitting a high of $4.68 billion in stablecoin market cap in March 2022, Avalanche has seen a significant loss, shedding over $1 billion from its stablecoin market cap in the past 10 days. As the network navigates these challenges, many wonder whether Avalanche can leverage its positive transaction growth to make a rebound, or if market pressure will continue to push it lower.

Mixed Signals from Avalanche Network

Avalanche, currently ranked 11th in terms of market cap, has seen a rise in daily transactions—an indicator of increasing network utility. On January 8th, the blockchain recorded 586,650 transactions, the highest level in 10 months. This growth suggests that the network is seeing more engagement, which is positive for long-term sustainability.

However, transaction growth alone isn’t enough to guarantee long-term success. While daily transactions are a good sign, a deeper analysis of the network’s liquidity shows some troubling trends. Total Value Locked (TVL) and stablecoin market cap, two critical metrics for network health, have both seen significant declines.

Declining Liquidity and Stablecoin Market Cap

Avalanche’s TVL, which peaked at $13.75 billion in December 2021, is now roughly 10% of its all-time high. According to DeFiLlama, the current TVL sits at around $1.375 billion, indicating a sharp drop. In addition to TVL struggles, the network’s stablecoin market cap has also seen significant volatility.

At its peak in March 2022, the stablecoin market cap on Avalanche reached $4.68 billion. However, by the end of November 2023, it had plunged to just $1.05 billion. While the market cap recovered to $2.43 billion in 2024, the new year brought fresh challenges, with significant outflows further reducing the stablecoin market cap by about $1 billion over just 10 days.

These liquidity issues are concerning, as they indicate that while the network’s usage is growing, its financial backbone—stablecoins and TVL—remains weak. This decline in liquidity could affect the overall stability of the network and hinder its ability to scale effectively.

AVAX Price Action: Short-Term Support or Further Decline?

Avalanche’s price has mirrored the overall market sentiment, falling in line with these negative liquidity trends. As of the latest data, AVAX is priced at $36.46, a sharp decline of 18.7% since the start of the week. The cryptocurrency is now approaching a short-term support zone near the $35 price range, which could act as a potential cushion for the price and set the stage for a short-term recovery.

Historical data shows that AVAX has often found support in this range, making it a crucial level to watch in the coming days. However, with the network’s liquidity issues and declining stablecoin market cap, it remains uncertain whether this support zone will hold. If the price continues to slide, the next key level to watch will be even lower, as the bears may continue to exert downward pressure.

Whale and Investor Behavior Show Caution

One of the most telling signs of investor sentiment comes from the data on whale and investor holdings. Whale holdings of AVAX have decreased slightly from 26.53 million (24.42% of the supply) to 25.59 million (24.35%) between January 1st and 8th. Retail investors, on the other hand, have been slightly more active, reducing their holdings from 32.51 million (29.93%) to 32.43 million (30.87%) during the same period.

However, the most significant shift comes from the investor category—the group that holds the largest portion of AVAX supply. Investor holdings decreased from 49.59 million coins (45.65%) to 47.06 million coins (47.78%). This reduction in holdings across all categories indicates caution among investors, as they may be pulling back in light of the network’s liquidity issues and the broader market’s uncertainty.

What’s Next for AVAX?

As Avalanche grapples with liquidity challenges and a shrinking stablecoin market cap, the next move for AVAX will largely depend on how the network can stabilize its financial metrics while maintaining its transaction growth. While transaction activity is a positive sign, the declining TVL and stablecoin market cap paint a more worrying picture for investors.

If the price holds above the $35 support zone and there is a rebound in liquidity metrics, AVAX could see a short-term recovery. However, if the downward trend continues and AVAX fails to regain liquidity and stablecoin market cap, the bearish pressure may continue to push the price lower.

Investors should monitor key levels of support and liquidity metrics closely, as the performance of the Avalanche network in the coming weeks will be crucial to determining whether it can overcome these challenges and make a comeback in the market.