Hyperliquid price action recently confirmed a breakout from a bullish reversal pattern, supported by a notable uptick in network revenue. 

After rallying to a yearly high of $37.84 on Feb. 3, the Hyperliquid (HYPE) price retraced nearly 18% to $31.06 at the time of writing.

This downtrend coincided with wider weakness across altcoins and majors like Bitcoin (BTC) and Ethereum (ETH), partly driven by a stronger-than-expected U.S. labor market report, which reduced the likelihood of imminent Fed rate cuts. Meanwhile, significant whale selloffs have also hurt its price performance.

Despite the recent price dip, a key network metric suggests that the token could be up for a recovery soon.

Data from DeFiLlama show that the revenue generated by the network over the past week has surged nearly 200% over levels recorded around the end of December. This uptick in revenue follows a spike in commodities futures trading on the platform, especially silver and gold markets.

Increased trading activity directly benefits HYPE holders through its unique buyback and burn mechanism. Notably, the protocol uses 97% of the fees generated by the derivatives trading platform to buy back HYPE from the open market, thereby reducing the available supply, which ultimately helps in supporting the price against volatility. Additionally, if Hyperliquid pairs are used for these trades, the protocol can burn them permanently to further increase scarcity.

There’s also considerable hype around upcoming updates. The Hyperliquid team has teased plans to support outcome trading via the HIP 4 upgrade, a feature that would be useful for the burgeoning prediction markets. A testnet version of HIP 4 is currently live.

On the 4-hour chart, Hyperliquid price has broken out of a falling wedge pattern formed of two descending and converging trendlines. Once confirmed, this pattern has historically been a precursor to staunch rallies.

Calculating a target based on this breakout would put HYPE on a path towards $36.70. This is calculated by adding the height of the pattern to the price at which it broke out of the upper trendline. At press time, this level lies roughly 18% above the current market price.

The MACD indicator appeared to favor the bullish prediction, with the MACD lines pointing steadily upward. At the same time, the Aroon Up was at 71.4% while the Aroon Down sat much lower at 28.57%, suggesting that bulls are still dominating the market direction.

However, it should be noted that broader market sentiment is playing a very important role in gauging market direction at the time, especially as BTC and ETH have been trading sideways this week. 

A sudden spike in volatility or a sharp correction in the majors, as seen earlier multiple times this year, could easily invalidate the bullish narrative and likely force the token back into a consolidation phase.

Bitcoin investors are being forced to rethink why they hold the asset as inflation data cools, according to Bitcoin entrepreneur Anthony Pompliano.

“I think the challenge for Bitcoin investors, can you hold an asset when there is not high inflation in your face on a day-to-day basis?” Pompliano said during an interview with Fox Business on Thursday. “Can you still believe in what Bitcoin’s value proposition is, which is that it’s a finite-supply asset. If they print money, Bitcoin is going higher,” he said.

“Bitcoin and gold are great long-term things,” he said. The Consumer Price Index (CPI) fell to 2.4% in January from 2.7% in December, according to the Bureau of Labor Statistics. However, Mark Zandi, Moody’s chief economist, recently told CNBC that inflation “looks better on paper than in reality.”

Bitcoin (BTC) is typically seen as a hedge against inflation because only 21 million coins will ever exist. When central banks increase the money supply and the value of fiat currencies declines, investors often turn to perceived riskier assets, such as Bitcoin, to protect their purchasing power.

Bitcoin sentiment has reached multi-year lows

It comes as sentiment for Bitcoin has reached multi-year lows not seen since June 2022, with the Crypto Fear & Greed Index, which measures overall crypto market sentiment, posting an “Extreme Fear” score of 9 in its Saturday update.

Bitcoin is trading at $68,850 at the time of publication, down 28.62% over the past 30 days, according to CoinMarketCap.

US dollar devaluation will be covered up by “monetary slingshot”

Pompliano said the macro environment could create short-term volatility for Bitcoin before it resumes its upward trajectory.

“We’re going get deflationary-type forces in the short term, people are going to ask to print money and to drop interest rates,” he said.

He explained that this will lead to the devaluation of the US dollar, though the effect won’t be immediately visible.

Related: Bitcoin ETFs bleed $410M as Standard Chartered slashes BTC target

“The currency is going to be devalued at a time where deflation covers up the impact, so I call it a monetary slingshot,” Pompiano said.

Pompliano forecasted that the Federal Reserve will continue to expand the money supply to “deal with inflation,” but as the dollar faces further devaluation, he expects Bitcoin to become “more valuable than ever.”

The US dollar index, which tracks the dollar’s strength against a basket of major currencies, is down 2.32% over the past 30 days and is trading at $96.88, according to TradingView. 

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