Optimism drops 12% – Why falling on-chain activity puts OP at risk

Optimism [OP] was not spared by the capital outflow that the crypto market has seen in the past day, with $91.76 billion leaving the market. As a result, OP fell 12% at press time.

Fundamentally, there are factors that could be attributed to the recent loss. One is the on-chain activity and volume of trading activity that has been on a declining streak over the past couple of days.

Optimism sees on-chain activity decline

There’s been a capital exit that is presently ongoing in the market, with roughly $14.33 million exiting the total value locked (TVL), according to DeFiLlama. TVL has been declining since October 5th, with a current value of $485.95 billion.

When there’s a decline in TVL over 36 hours, it’s a sign that investors may be anticipating a short-term decline in the asset. The most evident reason for this drop has been the volume activity across decentralized exchanges on the OP mainnet.

The data shows that while volume across these DEXes peaked on September 3 at about $495 million, it has since declined notably to its normalized level of roughly $21 million, according to data from DeFiLlama.

Declining activity at this scale often implies that there’s less usage across the chain, as well as less utility for its native OP token.

Can OP rebound from the demand zone?

There’s potential for a possible rebound for OP in the near term, depending solely on how price performs at its present level, where it currently trades.

Chart analysis indicates that OP has now dropped into a demand zone on the chart that played a role in the asset’s most recent upswing. If this demand level holds, there’s a chance the price rallies back to its previous local high on the chart at $0.15.

It’s important to watch the Accumulation/Distribution indicator to track the potential for a possible rebound in price. This is a volume-weighted indicator that tracks whether investors are buying or selling their holdings into the market.

At the time of writing, the A/D indicator has dropped to roughly -12.8 million in weighted volume on the chart. If this drop continues, there’s a potential that the price invalidates the demand zone, trending further lower.

For now, examining the A/D could provide the needed insight into whether the market sees a rebound or further downside on the table.

Market sentiment remains neutral

Market sentiment, according to CoinMarketCap, has remained neutral. This implies that investors are not decisive on whether the present bearish condition would persist, and neither are they optimistic about a potential bullish takeover.

While there’s been no confirmation yet that there’s a rebound on the table, investors sitting on the sidelines may not be great for a rebound. But this remains to watch, as a change in sentiment may precede a price trend.

Final Summary

• Optimism’s OP token has declined 12% as TVL and DEX trading volume continue to fall, pointing to weakening on-chain activity.
• OP has entered a demand zone, but a sustained decline in the A/D indicator could expose the token to further downside.