Optimism Price Plunges 30% from All-Time High
The price of Optimism (OP) dropped to a 14-day low of $2.90 on January 8th, experiencing a significant decline of 30% from its all-time high of $4.18 recorded on December 27th. This sharp decrease in price can be attributed to the liquidation of $2.45 million worth of LONG Optimism (OP) futures contracts within a 24-hour period. The impact of these dramatic shifts in Optimism futures trading is expected to have repercussions on the spot price action of OP in the coming days.
Why is Optimism’s Price Down?
Optimism’s price reached an all-time high of $4.18 on December 27th due to groundbreaking network-usage milestones achieved by Ethereum Layer-2 scaling protocols. However, as the altcoin market rally slowed down and OP holders started taking profits, the price began to decline. On January 8th, the price fell below $3, triggering significant losses in the derivatives markets.
Unexpected Liquidations Impact OP Price
The recent downtrend in Optimism’s price caught bullish futures traders off guard, leading to widespread liquidations in the derivative markets. Coinglass’ Liquidation Heatmap chart reveals that the negative price action on January 8th resulted in over $2.8 million worth of futures contracts being wiped out. This liquidation event occurs when adverse price movements force speculative traders to close their positions due to insufficient margin cover.
Shrinking Open Interest Signals Bearish Pressure
The rising Optimism open interest relative to spot prices over the past 12 days indicates increasing bearish pressure on OP. Between December 27th and January 8th, Optimism open interest (OI) declined by 40%, from $347.9 million to $209 million. In comparison, OP spot prices only experienced a 30% decline during the same period. This decline in open interest suggests that more capital is flowing out of the markets than fresh funds being invested.
Price Forecast: Will the $3 Support Hold?
Based on current market data trends, it is likely that OP price will retest the $2.50 territory. However, breaking down the psychological support level at $3 is crucial for the bears to capitalize on the negative momentum. IntoTheBlock’s In/Out of the Money Around price (IOMAP) data indicates that there may be significant resistance in the $3 area, with a large cluster of investors holding positions at an average price of $3.03. A drop below $3 could trigger margin calls and stop-loss triggers, potentially leading to a retest of the $2.50 OP price.
Hot Take: Bearish Outlook for Optimism
The recent decline in Optimism’s price and open interest, coupled with widespread liquidations and potential margin calls, suggest a bearish outlook for OP in the near future. The sharp drop from its all-time high and the ongoing profit-taking by investors indicate a loss of bullish momentum. While there may be some resistance at the $3 support level, further downside is anticipated unless significant bullish factors emerge in the market.
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