This week's volatile price action in the cryptocurrency market has created a rather impressive bifurcation among many well-known digital assets. Many large-cap tokens traded sideways or down over the past week, in spite of a few intraday surges throughout the week that made things interesting.
However, one crypto project that's clearly outperformed over the past week is Internet Computer (ICP -1.82%). As of 1:20 p.m. ET, Internet Computer has surged 38.9% since last Friday's close, driven by outsize interest in this decentralized computing crypto from traders and investors.
Let's dive into what drove this token higher, and where Internet Computer could be headed from here.
Decentralized computing appears to be in style
Internet Computer touts itself as a project on the forefront of Web3, aiming to create a "world computer" that provides end-to-end decentralization for all parties. Essentially a decentralized and serverless cloud platform, it allows developers to build decentralized applications within this ecosystem that feel like the web, but are all supported without using existing cloud infrastructure.
That certainly sounds intriguing, and is an investment thesis many can get behind. However, a recent update provided in late December appears to have stoked even more interest in the project from long-term investors and short-term speculators alike.
The Dfinity Foundation, the not-for-profit that is a major contributor to Internet Computer, announced on Dec. 18 that developers will be able to use tools to release decentralized applications in the European Union that comply with the region's strict regulatory environment. Via a subnet launch (set up via a decentralized autonomous organization governing Internet Computer), decentralized applications now have the ability to protect personal and financial data, in accordance with existing regulations. That's a game changer, and something that's generated a tremendous amount of buzz in the crypto community.
Since this announcement, trading volumes evidenced by open interest of futures contracts on ICP, have surged. Over the past two weeks, average daily open interest has surged from around $15 million to $20 million each day to nearly $120 million, as of Thursday. Additionally, trading volume has seen a similar spike, suggesting that this run-up in Internet Computer's valuation is being driven by strong momentum and investor interest.
Can this rally be sustained?
High-volume momentum-driven moves like this in the crypto space can last for some time. Now, it's only been a few trading days in a row that investors have piled into this particular token in earnest. And some of this week's gains were pared during Friday's session. Accordingly, the jury remains out with respect to whether Internet Computer's recent rally is truly sustainable or not.
However, a fundamental increase in network activity derived from Dfinity's European subnet launch is encouraging. There are some meaningful data points to support this rise, for those more skeptical or value-oriented investors. Thus, I think it's best to take a wait-and-see approach when it comes to this project, at least for now. I'll be tracking Internet Computer's user metrics moving forward, and will provide updates if this rally shows fundamental signs of sustainability.
