Stellar (XLM), which surged over 100% in the past week, is now witnessing a sharp decline in its Open Interest. This movement indicates a waning enthusiasm among derivatives traders, potentially signaling a loss of momentum in the recent rally.
While holders may remain bullish, on-chain indicators suggest that XLM price may face a significant correction if the current market condition does not change.
Stellar's market dominance declines
Last Sunday (28), XLM’s Open Interest rose above $339 million, an all-time high. As previously reported, this high interest in the altcoin is linked to the rise in the price of XRP.
However, the OI, as it is commonly abbreviated, fell to $209 million. This drop indicates that traders closed previously open contracts worth $130 million. Unsurprisingly, this drop coincided with the drop in the price of XLM, which lost 10% of its value in 24 hours.
From a price perspective, the drop in OI means that buying pressure in the derivatives market has decreased. Therefore, if the value of OI continues to fall, the coin is likely to fall below $0.45.
Open Interest to Stellar. Source: Feeling
Another bearish sign is a drop in social dominance. This metric measures the proportion of discussions about a cryptocurrency compared to the top 100 by market cap. When social dominance increases, it generally indicates increased interest and demand. Conversely, a drop suggests decreased attention and potentially lower demand.
A few days ago, Stellar’s social dominance was at 3.13%. However, it has dropped significantly to 1.73%, implying that market participants are shifting their focus to other assets. If this trend continues, it could lead to further price declines.
Stellar's Social Dominance. Source: Santiment
Price Prediction: Return to $0.28 Likely
If the decline in OI and social dominance continues, XLM may struggle to sustain its recent gains. On the daily chart, the Money Flow Index (MFI) reading has declined. The MFI measures buying and selling pressure and indicates whether an asset is overbought or oversold.
When the reading is above 80, it is overbought. But, when it is below 20, it is oversold. As seen below, the MFI reached the overbought zone before pulling back. Considering the current condition, the price could drop to $0.28.
Stellar Daily Analysis. Source: TradingView
However, a drop below the $0.22 support level could push the price towards $0.17. On the other hand, if buying pressure increases in the derivatives and spot markets, this may not happen. Instead, XLM could rise to $0.64.
The article What to expect from Stellar (XLM) after a sharp drop in OI? Analysis was first seen on BeInCrypto Brazil.
