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Be Wary of Decentraland Amid Recent Comeback

  • Following some terrifying dips this year, Decentraland (MANA-USD) is bouncing back.
  • Technically, MANA looks more interesting but fundamental concerns remain.
  • It’s still a “buyer beware” type of investment.
Decentraland logo displayed on smartphone screen, teal background behind the phone

Source: shutterstock.com/Piotr Swat

Thanks to the advent of Web 3.0 or the next generation of internet connectivity, the concept of virtual real estate has flourished. Among the providers of said service is Decentraland, a three-dimensional virtual world browser-based platform. Although the underlying MANA token has been one of the surprise hits within the cryptocurrency space, its incredible wildness leaves many people questioning its longer-term viability.

For instance, over the trailing six-month period, Decentraland has gained a remarkable 348% in market value. Yet on a year-to-date basis through the early morning hours of March 28, MANA finds itself in deficit to the tune of 17%. During this period, the token has experienced both explosive upside moves and frightening downturns.

Therefore, with Decentraland gaining about 9% over the past five days, some crypto investors may be skeptical. It wouldn’t be the first time that MANA jumped higher, only for the price to collapse after the bulls piled on.

So, can prospective MANA buyers trust this rally? Or should they wait for better signals?

Decentraland Demonstrates Technical Resilience

On Oct. 27, 2021, Decentraland tokens were trading hands at around 76 cents a pop. A few days later on Nov. 2, MANA reached just shy of $3.13. Later that same month, it would briefly blow past the $5 level before entering a decidedly negative trend channel.

Although the surge higher from literal penny-stock territory to a respectable valuation was incredibly impressive, I’m more stunned that, so far, Decentraland hasn’t collapsed under the weight of its unsustainable bubble. It’s just not normal for an asset to climb nearly 7X inside a month without burning out in spectacular fashion.

While Decentraland is down significantly from its peak, as I write this, the token is making its way toward $3. That’s a victory in my book because the correction could have been much worse.

Indeed, between late October through late December of last year, MANA printed what looked like a bearish head-and-shoulders pattern. When the token dipped into low $2 territory early this year, it seemed that the implications of this pattern were coming true.

However, MANA traders fought back, keeping its price generally above its 200-day moving average. As of this writing, Decentraland trades just above its 50 DMA, implying a bullish reversal.

MANA Community Still Has a Long Way to Go

To be fair, Decentraland could be in the early stages of a recovery. And as a stakeholder, I’d love to see MANA do exactly that. However, I must be objective. The operative word here is early. It’s still possible that the token could be doing a head fake.

What worries me, then, on a fundamental basis is that the Decentraland community may still have a long way to go before achieving a level of user volume that would more likely and consistently spark confidence in the underlying platform.

According to a recent report on the matter, Decentraland’s “population” features approximately 800,000 registered profiles. Given the speculative nature of MANA, 800,000 is an impressive tally. However, the problem with digital communities is that they can be fickle.

Take MySpace as an example. In 2004 — a year after the social media platform’s official launch — MySpace had 5 million users. In the following year, this figure ballooned to 22 million. At the peak of its power in 2008, the platform had 115 million users. Subsequently, though, MySpace started to hemorrhage users as people gravitated toward competitor Facebook, under the recently rebranded Meta Platforms (NASDAQ:FB).

While MySpace and Decentraland are obviously different entities, they both provided an online identity for their respective communities. It’s just that Facebook came along and provided a more attractive platform.

The same could happen against MANA, which is where the threat lies.

Nibble on Decentraland Carefully… If at All

If you’re truly dead set on owning MANA tokens, I would take baby steps into this rally. Yes, the recent rally in its price tag is encouraging. MANA has also rewarded stakeholders who were patient during prior periods of volatility. The same could happen again in the near future.

However, that’s the technical aspect of Decentraland, which is subject to unpredictable free market forces. Fundamentally, one of the biggest challenges to the MANA platform is the potential for a bigger, better Web 3.0 platform to steal the limelight.

As Facebook demonstrated in its victimization of MySpace, digital community members can be fickle. When a migration occurs, it doesn’t trickle — it’s a veritable avalanche from one platform to the other. Therefore, don’t buy MANA unless you can stomach such extreme outcomes.

On the date of publication, Josh Enomoto held a LONG position in MANA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

Article printed from InvestorPlace Media, https://investorplace.com/2022/03/be-wary-of-decentraland-amid-recent-comeback/.

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