Price Prediction: Will the $3
The price of Optimism experienced a significant drop to a 14-day low of $2.90 on January 8th, representing a 30% decline from its all-time high of $4.18 on December 27th.
This sudden decline in price was a result of the liquidation of $2.45 million worth of LONG Optimism (OP) futures contracts within a 24-hour period. Analyzing derivative market data trends can provide valuable insights into the potential impact of Optimism futures trading on the spot price of OP in the coming days.
The reason behind the drop in Optimism’s price can be attributed to the slowdown of the altcoin market rally at the beginning of the year, leading OP holders to start taking profits. As a result, the price of OP fell below $3 in the early hours of January 8th, causing significant losses in the derivatives markets. This decline brings the price down by 30% from its all-time high.
Interestingly, the recent downtrend in OP’s price caught bullish futures traders off guard. The decline on January 8th was accompanied by widespread liquidations in the derivative markets. Coinglass’ Liquidation Heatmap chart reveals that over $2.8 million worth of futures contracts were wiped out due to OP’s negative price action.
A liquidation event occurs when adverse price movements force speculative traders to close their positions due to insufficient margin cover. The Liquidation data heatmap from Coinglass provides a real-time snapshot of the dominant direction of losses.
The green bars in the heatmap indicate that LONG traders experienced a disproportionately high number of daily losses compared to bears. By midday Eastern Time on January 8th, the Optimism bulls accounted for 86% of the losses, with $2.49 million worth of OP LONG positions being erased.
Another significant market indicator pointing towards growing bearish pressure on OP is the rising spate of Optimism open interest relative to spot prices in the past 12 days. Since December 27th, Optimism open interest (OI) has decreased 10% faster than the price, indicating a wave of voluntary exits as market momentum turns bearish.
Between December 27th and January 8th, Optimism’s open interest has declined by 40% from $347.9 million to $209 million. In comparison, OP spot prices have only declined by 30% from $4.11 to a local bottom of $2.90.
Open interest quantifies the total capital invested in active derivatives contracts for a specific cryptocurrency. When open interest for an asset shrinks, strategic investors consider it a bearish signal as it indicates that more capital is flowing out of the markets than new funds being brought in by investors.
The current market dynamics show a 30% drop in OP’s price since it rejected the market top on December 27th. However, it is more concerning that capital stock in Optimism futures contracts has shrunk 10% faster.
The $2.4 million spike in OP LONG liquidations on January 8th suggests forced selling, where traders are compelled to exit their long positions due to adverse price movements. Additionally, the decline in open interest faster than Optimism’s price implies that traders are not only voluntarily closing positions but also experiencing an accelerated liquidation effect.
This bearish alignment indicates the potential for further price downside, possibly driven by margin calls and stop-loss triggers.
Looking ahead, based on current market data trends, OP’s price appears to be heading towards a retest of the $2.50 territory. However, for the bears to fully capitalize on the growing negative momentum, they must first break the psychological support level at $3.
IntoTheBlock’s In/Out of the Money Around price (IOMAP) data reveals that there could be significant resistance in the $3 area, as 3,260 addresses acquired 6.1 million OP tokens at an average price of $3.03. If these investors choose to defend their positions by making short-covering purchases, it could lead to a rebound in OP’s price.
On the other hand, a drop below $3 could trigger another wave of margin calls and stop-loss triggers. In this bearish scenario, it is likely that OP’s price will retest $2.50.
In a bullish scenario, if the bulls regain control and Optimism’s price reclaims $4, there are 7,800 addresses that acquired 44.3 million OP at an average price of $3.50. If these investors decide to take early profits, OP’s price will retrace once again.
However, a positive spot Bitcoin ETF could have a bullish impact on the altcoin markets. In this case, OP bulls could gather enough momentum to break through the resistance sell-wall at $3.50.
