Your Algorand [ALGO] holdings might suffer a drop in value because of this

• ALGO’s price has rallied tremendously since 2023 began.
• However, a price reversal might be underway.

While Algorand’s [ALGO] price might have rallied by about 10% in the last seven days, a steady decline in its Chaikin Money Flow (CMF) on a daily chart created a bearish divergence that typically precedes a price reversal. 

Read Algorand [ALGO] Price Prediction 2023-24

According to data from CoinMarketCap, ALGO traded at $0.258 at press time. On a year-to-date basis, the alt’s price has grown by 47%.

Where’s the risk for Algorand?

However, ALGO holders might be at risk of shedding these gains as there has not been a corresponding rally in the alt’s CMF in the last week. In fact, it has been on a downtrend and has since dropped by 42%.

When an asset’s price rallies to a higher high into overbought zones and its CMF diverges into a lower high and falls, this creates a bearish divergence that is typically taken as a sell signal. 

This bearish divergence often suggests that the market is overbought and that a price correction is possible. This might imply that, despite the rally in the assets’ price, the purchasing pressure behind it is lessening, suggesting that the market is getting more negative and traders are becoming more cautious about buying at such high levels.

Moreover, key indicators were pegged at overbought highs as of this writing. For example, ALGO’s Relative Strength Index (RSI) was 70.15 at press time. Likewise, its Money Flow Index (MFI) rested at 73.11.

The overbought positions occupied by these momentum indicators are typically marked by buyers’ exhaustion. Often, at these levels, buyers in the market find it challenging to sustain any further price rally, thereby giving way to the bears. 

Source: ALGO/USDT on TradingView

Less development activity and growing negative sentiment

On-chain analysis of the Algorand ecosystem revealed a decline in development activity since 1 January. According to data from Santiment, development activity on Algorand dropped by 9% since 2023 started.

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Interestingly, while ALGO’s value has climbed by almost 50% since 1 January, the altcoin has been mostly trailed by negative sentiment. Since the year started, ALGO only enjoyed positive sentiment between 17 – 20 January before sentiment flipped back to negative.

As of this writing, the weighted sentiment was -0.284, data from Santiment showed. 

Source: Santiment