Optimism capitulates – Is OP’s short squeeze to $0.16 next?
A bounce fueled by short-squeeze mechanics is possible in the short-term, but the long-term trend was firmly bearish.
Optimism [OP] has posted heavy losses recently. AMBCrypto reported that the main driver of this price drop was a fundamental change in its network as an Ethereum [ETH] Layer-2 solution. Base announced that it would be moving away from the OP stack and toward a unified Base-operated stack.
This meant that Optimism would be losing a big chunk of its transaction activity and revenue.
Sizeable long liquidations and spot trading volume spikes suggested a flurry of intense selling, forced or otherwise. It would be hard for the bulls to stop the downtrend of the past five months.
How far south can OP go from here?
The market sentiment was heavily against the L2 token. The Open Interest (OI) had surged by nearly 60% since Wednesday, the 18th of February. During this time, the Optimism token prices had tanked by 29.3%. This was a sign that derivatives traders had been going short, resulting in a noticeable increase in OI.
Combined with the high trading volume since the 18th of February, it appeared that there would be no respite from selling in the coming days. Yet, the market never goes down in a straight line forever.
There will be a price bounce to hunt down the thick short liquidations clustered overhead.
The rising OI has begun to stabilize, showing that the period of aggressive shorting was ending. Momentarily, OP has found some respite at the $0.127-$0.130 zone.
Yet, the altcoin was trading at an all-time low. There were no long-term supports further south that a bullish reaction is expected from.
The A/D indicator made new multi-month lows after the extremely high selling volume in recent days. Meanwhile, the RSI was at oversold extremes with a 22.5 reading on the daily timeframe.
In the coming days, a bounce to $0.14-$0.16 to hunt short liquidations is a possibility that traders have to be prepared for.
Final Summary
- The Optimism price drop was likely triggered by Base migrating away from the OP stack.
- The high OI increase and the rapid price descent cemented the fact that the market was seller-dominated.
Disclaimer: The information presented does not constitute financial, investment, trading, or other types of advice and is solely the writer’s opinion.
