Most of the crypto market is down, but Cosmos (ATOM) price is up – why?

The Ethereum merge has finally happened. It’s over and luckily it went smoothly without any major hiccups. As predicted by many, the event turned out to be a buy the rumour, sell the news style event, or perhaps the CPI, which came out hotter than expected on September 12th, was the real catalyst that rocked the market cast its spell on current direction.

Regardless of the reasons for this week’s downturn, the merger is over and in its wake the bulls are holding a whole lot of nothing. It’s likely that a new bullish narrative will have to emerge, or analysts will have to keep a close eye on smart money to see which assets they’re switching into.

Keep in mind that according to so many “smart” people, “The Merge” was supposed to be a bullish event that would potentially push Ether price higher, and the trove of hardfork ETH POW tokens should magically be multiple Billions of dollars are materializing liquidity that would likely flow to Bitcoin and help the ailing asset break out of its current range.

Well, none of that happened. That’s not to say it won’t happen, but the current reality is a market that’s painted a bright red. Bitcoin’s drop below $20,000 on Sept. 15 triggered a market-wide correction that resulted in double-digit losses for the majority of altcoins, and right now there’s no easy-to-understand story that investors could interpret as bullish.

Not everything is dumping

There happens to be one outlier, and its name is Cosmos (ATOM). To the surprise of some, it’s one of the few green assets on the Merge Day charts. Currently, the altcoin is up 9.4% and has recovered strongly from its September 14 low of $13.19.

Previous analysis discussed how ATOM price is trading within an ascending channel and above the 20-day moving average and suggested that dips to and below the moving average reflect good buying opportunities. A simple technical analysis of ATOM’s price action would focus on:

  • ATOM price continues to make higher lows and higher highs while trading inside the trend lines of an ascending channel.
  • ATOM price experienced a brief uptrend outside the channel, tapped the 200-day moving average and then corrected back to the channel midline and the 20-MA to confirm both as support.
  • After testing the support, the price resumed the uptrend and is now trading at the top of the current range and is likely to retest the 200-MA to try to flip the level onto the support.

Let’s briefly examine some of the possible factors behind ATOM’s bullish momentum.

Related: Crypto traders are eyeing ATOM, APE, CHZ and QNT as Bitcoin flashes the lower signs

Protocol migration, liquid staking, an increasing TVL and the potential of IBC

A number of protocols were flipped away from Terra after the implosion and restarted on the Cosmos Hub SDK. Also in September, analytics firm and protocol maker Delphi Digital announced that it had selected Cosmos as its primary blockchain for building new projects.

When projects are built on top of Cosmos Hub, ATOM often gains value as DeFi protocols and other DApps participate in the network’s interchain security system, which works through IBC. The Inter-Blockchain Communication Protocol (IBC) is essentially an “Internet of Blockchains” and a bridge that enables cross-chain transfer of tokens and secure interoperability between different blockchains.

Typically, the DApps, AMMs, and DeFi-style platforms built on blockchains offer staking, and the fees generated from this are often shared among stakers.

Staking ATOM currently offers an APR of 17.75% and according to Staking Rewards 66.75% of the available circulating supply is staked. Cosmos will introduce liquid staking, a phenomenon that when deployed on other DeFi platforms on other blockchains led to increased buying pressure on the ecosystem’s native tokens.

The data also shows a steady increase in the number of unique delegation addresses on the network.

7-day increase in unique delegation addresses on Cosmos. Source: Staking Rewards

Several Cosmos ecosystem platforms, including COMDEX, will launch their own stablecoin (CMST) and it is likely that assets locked and staked within the platform will “support” the $1 peg of these stablecoins. Given the structure of Cosmos Hub and IBC, it seems likely that ATOM will be one of the key assets used in the “minting” process.

Of course, the total value (TVL) collapsed within the Cosmos ecosystem as DeFi and the broader crypto market succumbed to the bear trend. This number has yet to recover significantly, but the chart below shows notable inflows over the past 7 days. This will be a number to watch alongside ATOM’s price.

Protocols within the Cosmos Hub (ATOM) ecosystem. Source: Defi Llama

Other growth metrics that should raise eyebrows from investors are Cosmos’ 180-day supply-side earnings, log earnings, and daily trading volume.

Supply-side revenue reflects the amount of transaction fees allocated to verifiers, while total revenue is the total transaction amount paid by protocol users.

Protocol revenue, on the other hand, is the transaction fees that go to the protocol that owns ATOM and may share some of that revenue with platform users and gamers.

Cosmos outstanding market cap and supply-side earnings. Source: Token Terminal
Cosmos Circulating Market Cap and Log Earnings. Source: Token Terminal
Outstanding market cap of Cosmos and ATOM trading volume. Source: Token Terminal

Essentially what we are seeing is Metcalfe’s Law in effect. As the ecosystem grows, the network grows, overall value increases, liquid staking adds value to the staked assets, which also enter a cycle of buying, stacking, minting into stablecoin or promissory notes, and then being used within the ecosystem to create additional boost growth.

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