Here’s why ApeCoin has suffered a harsh reversal

ApeCoin experienced a sharp pullback on October 22, reversing some of the gains it had made in the previous five days.

The token, associated with Yuga Labs and its Bored Ape Yacht Club (BAYC) project, fell to $1.44, down nearly 20% from its weekly high. Despite this drop, ApeCoin is still 200% higher than its lowest point in August.

This decline followed the launch of ApeChain, Yuga Labs’ much-anticipated layer 3 network built on Arbitrum One. ApeChain allows developers to build applications in sectors like gaming, decentralized finance, and NFTs. It also enables ApeCoin holders to stake their tokens to earn rewards by securing the network.

ApeCoin’s automatic yield feature reinvests earnings automatically, which helps maximize returns for stakers.

Yuga Labs hopes ApeChain will help expand its ecosystem, especially as BAYC sales have seen a significant decline this year. Data from CryptoSlam reveals that BAYC sales fell from $41 million in March to just $7.1 million in September, a sharp drop from the peak of $346 million in January 2021.

The price drop in ApeCoin can be attributed to two main factors. First, the decline is likely the result of a “sell the news” effect, where assets typically rise in anticipation of a major event, followed by a pullback as some investors take profits. Second, the drop in ApeCoin’s price also reflects concerns about the challenges ApeChain may face, as the layer 1, 2, and 3 blockchain industries are highly saturated.

The broader weakness in the crypto market also contributed to the sell-off, with Bitcoin retreating to $67,000 after briefly reaching $69,300 on October 21. Additionally, the total market capitalization of all cryptocurrencies dropped by 3%, falling to $2.43 trillion.

ApeCoin price formed a spinning top

On Monday, ApeCoin (APE) reached a high of $1.754, just shy of the 61.8% Fibonacci Retracement level. Following this, it formed a spinning top candlestick, a pattern characterized by a small body with long upper and lower shadows. While the spinning top is generally a neutral pattern, it can also signal a potential reversal.

ApeCoin continues to trade above both the 50-day and 200-day Exponential Moving Averages, as well as above the 38.2% Fibonacci Retracement level. Given this, the token could experience further decline, potentially revisiting the 200-day moving average around $0.980. However, this bearish outlook would be invalidated if the token manages to break above this week’s high of $1.754.