Optimism token price is at risk of a bearish breakdown

The optimism token remains in a deep bear market as most cryptocurrencies’ recent rally has stalled.

Optimism (OP), one of the leading tier 2 tokens, was trading at $1.5140 on October 10, down 70% from this year’s high.

One reason optimism has waned this year is that the network continues to lose market share in the industry.

It has been surpassed by layer 1 networks such as Avalanche (AVAX) and Sui (SUI) in key areas such as decentralized finance. It has also passed popular layer-2 networks such as Base and Arbitrum.

Optimism’s total value locked in the DeFi sector fell to $627 million from its year-to-date high of $1.04 billion. Additionally, stablecoin volume in its ecosystem dropped from $1.35 billion, its highest level since the beginning of the year, to $1.17 billion.

Additionally, its role in the DEX index industry has diminished; While weekly volume fell 24% to $503 million, Sui’s and Base’s volume increased 51% and 5%, respectively, over the same period.

OP’s price dropped after the developers announced their fifth airdrop, unlocking 10 million OP tokens to 54 million.

There are now 500 million OP tokens left for future airdrops, meaning current holders can expect further dilution.

🔴 Use the Super Chain and enjoy the benefits 🔴

Today, @Optimism Introducing Airdrop #5:

Together in the chain, benefit together.

10M+ OPs allocated to 54k+ unique addresses.

As of today there are approximately 550 million OP left for future airdrops. pic.twitter.com/TCS1oSXKBs

— Optimism (@Optimism) October 9, 2024

The bulk of this reduction will be due to Optimism having a circulating supply of 1.25 billion tokens versus a maximum supply of 4.29 billion. According to Defi Llama, the network unlocked 49.19 million tokens in September, with the final unlocking planned for 2026.

Meanwhile, Optimism’s volume on the futures market also fell. Data shows open interest on futures fell to $104 million on Oct. 10 from $327 million, the highest level year-to-date.

Optimism token at risk of further downside Optimism price chart | Source: TradingView

On the daily chart, the OP token has been in a strong downtrend since reaching $4.86 in March.

It remained below the 50-day and 100-day Exponential Moving Averages. Additionally, the Relative Strength Index, which measures the pace of change, also moved downwards.

Optimism has also formed a bearish flag pattern, indicating the potential for a bearish breakout. If that happens, it could drop support to the August low of $1.06 and retest it.