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Although Stellar (XLM) has skyrocketed over 100% in the past week, it has now seen a sharp decline in Open Interest. This decline indicates a loss of interest among derivatives traders, which could signal the recent bullish momentum may be waning.
While holders may remain optimistic, on-chain analysis indicates that the price of XLM could face a significant correction if current market conditions do not change.
Stellar Market Loses Advantage
On November 24, XLM Open Interest surpassed $339 million, reaching an all-time high. As previously reported, this huge interest in altcoins is linked to the rise in the price of Ripple (XRP).
However, at the time of writing, open interest, as it is commonly abbreviated, has dropped to $209 million. This decrease shows that traders closed out previously open contracts worth $130 million. Unsurprisingly, the decline coincided with a drop in XLM price, causing it to lose 10% of its value in the past 24 hours.
From a price perspective, the decrease in OI means that buying pressure in the derivatives market has decreased. Therefore, if the OI value continues to decrease, then the XLM price could drop below $0.45.
Another negative signal for Stellar is the decrease in social dominance. This metric evaluates the ratio of discussions about a cryptocurrency compared to the other top 100 assets. When social dominance is high, it often indicates increased market interest and demand. Conversely, a decline implies a decline in attention and possibly a decrease in demand.
A few days ago, XLM’s social dominance rate was 3.13%. However, it dropped significantly to 1.73%, implying that market participants are turning their attention to other assets. If this trend continues, it could lead to further price drops for XLM.
XLM Price Forecast: Possible Retreat to 0.28 USD
If the decline in OI and social dominance continues, XLM may struggle to maintain recent gains. On the daily chart, the Money Flow Index (MFI) has turned down. MFI measures buying and selling pressure, indicating whether an asset is overbought or oversold.
When the index is above 80.00, it is overbought. But when the index is below 20.00, it is oversold. As seen below, the MFI touched the overbought zone before retracing. Considering the current situation, XLM price could drop to $0.28.
However, a break below the $0.22 support could push the price down to $0.17. Conversely, if buying pressure increases in the derivatives and spot markets, this may not happen. Instead, XLM could rise to $0.64.
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