PancakeSwap DEX burns over 7.8 Million CAKE tokens, but will this Trigger a Price Rally?

In a piece of major news coming out of the decentralized exchange, PancakeSwap – in a Twitter post the team announced that it has burned 7,822,421 CAKE tokens, worth a little over $20 million in an effort to reduce the supply of its native token and thus making it deflationary. According to data from CoinMarketCap, PancakeSwap has a little over 194 million CAKE tokens in circulation, with the total supply standing at a little under 385 million CAKE.

🔥 7,822,421 $CAKE just burned – that’s $20M!

💰 Trading fees (Swap and Perpetual): 205k CAKE ($538k) +31%
🔮 Prediction: 83k CAKE ($216k) +27%
🎟️ Lottery&Pottery: 30k CAKE ($78k) +32%
🔒 NFT Market, Profile & Factory: 878 CAKE ($2k) +99%

*% change from last week is in CAKE… pic.twitter.com/q9K3Hv9BNB

— PancakeSwap🥞Ev3ryone's Favourite D3X (@PancakeSwap) May 1, 2023

The fourth-largest decentralized exchange by market capitalization generated about 205k CAKE tokens worth about $538,000 in trading fees for its Swap and Perpetual market – up by 31% from the previous week. Its Prediction and Lottery markets also generated 83k CAKE, worth about $216k, and 30k CAKE, worth about $78,000 – respectively. PancakeSwap’s NFT marketplace stood in the last place, generating about 878 CAKE, worth around $2000 – but has nearly doubled since the previous week.

PancakeSwap is a Decentralized Exchange (DEX) built on BNB Chain. It is a protocol that offers various features ranging from Liquidity Pools (LPs), swapping, yield farming, Syrup Pools, an Automated Market Maker, Initial Farm Offerings (IFOs), an NFT profile system, among many others.

Coin-burning mechanisms are one of the most popular ways of trimming down a coin’s inflation and this often has a positive price effect if enough coins are burnt. This is due to the fact that the burning process results in a reduction in the circulating supply of the token which makes it a deflationary asset, thus increasing its value. The recently burned 7.8 million CAKE tokens makeup about 4% of the total circulating supply of the token, which is a significant number.

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Will Pancakeswap Price be able to Recover post this Burn?

While burning mechanisms do result in a spike up in the price as it additionally also brings about a positive sentiment in its investors and the market as a whole. However, in the case of CAKE – this token has been suffering from a bearish turn for quite some time now in 2023, despite the broader bullish sentiment in the crypto market. In fact, CAKE price has lost nearly half its value from its year-to-date highs of $4.8 and is currently trading around $2.5.

CAKE/USD | Source: TradingView

From a technical point of view, CAKE token is in a very weak position presently. It is trading well below its 50 and 200-day moving averages and additionally, the aforementioned moving averages have suffered a death cross on the chart, with the smaller timeframe 50-day moving average crossing down below the 200-day moving average. Additionally, the Relative Strength Index for the token is at about 22, which is deep within the oversold territory, which also indicates that a further fall seems unlikely for the time being – but doesn’t guarantee a recovery any time soon.

The major crash that occurred in the price of the CAKE token between April 25 to April 27 also saw immense volumes, indicating that people were participating in the selloff, which also suggests some panic selling might have been in the market. Thus the overall sentiment and the technical structure for the token seem properly bearish as of now, despite its constant burning schedule.