Sonic [S] falls 17% in a day: Can it avoid further losses?

• After weeks of successive market gains, Sonic has begun to decline as sellers offload their holdings.
• Key metrics show an outflow of liquidity from the market as more sellers dominate.

Sonic [S] (prev. FTM) has been on a bullish path in recent weeks, recording a series of gains. In the past month alone, it rallied 31.11% and added 21.75% in the past week.

But, at the time of writing, Sonic dipped 17.22% in the past 24 hours. This decline was due to a surge in liquidity outflow and increased selling pressure from derivative market traders.

Key metrics point to failing performance

There has been a shift in the derivative market, as key metrics increasingly point to a bearish outlook for the asset in the coming days.

Open Interest (OI), which determines the amount of unsettled derivative contracts, has declined notably. It dropped 19.44% to $114.13 million. Such a decline suggests contract closures in the market.

The bearish sentiment from this declining OI is confirmed by rising volume. It grew 49.77% to $795.48 million in the broader market.

This bearish trend is further supported by liquidation data, which recorded losses for buyers and sellers during a given timeframe.

The segment with the highest losses indicates the market is moving in the opposite direction.

At the time of writing, over $1.4 million has been liquidated in the market. Long positions lost $1.32 million, while short contracts lost only $81.05 thousand.

Source: Coinglass

With long positions experiencing the most losses, this suggests the market is trending downward and will likely continue on this path until key market metrics change.

Liquidity outflow declines

Liquidity has been flowing out of the Sonic market. Total Value Locked (TVL), which records the amount of assets deposited into various protocols within the ecosystem, has been gradually decreasing.

At the time of writing, the TVL had dropped from a high of $736.04 million on the 24th of February, to a current level of $694.4 million.

That is, a total of $41.44 million has been removed from the market. If selling pressure continues to grow, the decline is expected to intensify.

Source: DeFiLlama

A broader outlook on the TVL chart suggests this could be a simple corrective market phase before a potential rebound, as seen on multiple occasions.

However, the extent of this corrective phase cannot be determined, meaning it could be the steepest fall yet.

Traders’ confidence wanes

The confidence of long traders in the market has weakened as the funding rate turns negative. This suggests short-term traders are gaining dominance.

With a reading of -0.0071, the market could continue to decline. More short traders are paying a premium to maintain price disparity between the spot and derivative markets.

Finally, market sentiment indicates that Sonic is in its most bearish state and has a high likelihood of further price declines.