Avalanche (AVAX) has posted a modest recovery after weeks of declining prices, but behind the scenes, market dynamics are shifting. While smart money investors continue to hold their profitable positions, retail traders are starting to exit, raising questions about whether the recent uptick is the start of a sustainable rally or a temporary rebound.

After a prolonged slump that saw AVAX drop by over 26% in the past month, the token has bounced back with a 2.62% gain in the last 24 hours. This is AVAX’s first notable upward movement in weeks, providing some relief to holders. However, deeper market data reveals a divergence between investor groups—one that could shape AVAX’s short-term trajectory.

According to data from blockchain analytics firm Nansen, smart money investors—those known for their well-timed, high-profit trades—have generated substantial returns on AVAX despite recent price declines. In fact, these sophisticated traders are sitting on unrealized profits of up to 375% across multiple positions, totaling nearly $1 million in potential gains.

What’s interesting is that these investors have not rushed to sell. They continue to hold onto their AVAX positions, possibly signaling long-term confidence or awaiting higher price targets before exiting. Historically, smart money tends to sell during periods of peak euphoria, which AVAX has yet to reach.

In contrast, retail traders are reacting more conservatively. CoinGlass data shows that retail investors have started selling off AVAX in response to the recent minor gains. This comes just a week after they had accumulated $11.9 million worth of the token. In the last 24 hours alone, retail spot traders have sold approximately $821,000 worth of AVAX, indicating a shift in sentiment from accumulation to caution.

The bearish outlook extends to the derivatives market as well. Retail traders have begun opening short positions, anticipating further downside in AVAX’s price. This is reflected in the Open Interest Weighted Funding Rate, which has turned negative at -0.0022%. A negative funding rate typically means that short positions are gaining popularity, reinforcing the market’s pessimistic tone among retail participants.

Technically, AVAX has shown some promise on the charts. The price recently broke out of a descending channel pattern, a move that typically signals a potential trend reversal. If momentum continues, AVAX could climb back to the peak of that channel, offering possible upside for traders. However, immediate resistance lies ahead.

To sustain this breakout, AVAX must clear its next major hurdle around $19.81. If successful, the price could target the $22 level—an increase of roughly 27% from the breakout point. That said, rising selling pressure, especially from retail traders, could hinder this progress.

Adding to the complexity is the stagnation in Avalanche’s Total Value Locked (TVL), which measures the amount of crypto assets committed to DeFi protocols on the network. Over the past 24 hours, there’s been no significant change in TVL, suggesting that new capital isn’t entering the ecosystem in a meaningful way. This neutral market behavior reflects overall investor indecision and adds another layer of resistance to AVAX’s recovery hopes.

In summary, while smart money continues to bet on Avalanche’s potential, retail investors are growing cautious. This divergence could either lead to a delayed but stronger rally—or further downside if broader sentiment turns more negative. For now, AVAX remains at a pivotal point, where price action in the coming days will help determine its near-term path.