Will Optimism’s downtrend continue or reverse? Assessing…

• OP appears to be on the verge of breaking out from a massive head-and-shoulders pattern.
• OP holders remained in profit, while 40.17% were out of the money.

Optimism [OP] has currently formed a head-and-shoulders pattern that signals potential further downside. As the price teeters near a crucial support level, investors remain cautious about OP’s next move.

The big question at the moment is will OP maintain its downtrend, or will it reverse to beat all the odds?

Is OP headed for a breakdown?

Analysis of OP revealed a well-defined head-and-shoulders formation, a pattern often associated with bearish reversals.

The left shoulder peaked around $2.70, the head formed near $4.50, and the right shoulder recently completed below $2.50.

Source: Ali Charts

OP has since dropped below $1.10, breaching the neckline. This breakdown, if confirmed, suggests further downside, potentially testing lower supports near $0.80 or lower.

However, a failed breakdown could trigger a short squeeze, forcing bears to cover their positions and potentially pushing OP toward a retracement back above $1.50.

OP: Bulls, bears in tug-of-war

A look into the break-even price data showed that 54.89% of OP holders remained in profit, while 40.17% were out of the money.

This suggested that a significant portion of investors could still exit at a profit, limiting panic selling.

Source: IntoTheBlock

However, the cluster of at-the-money positions (4.94%) near $1.01 indicated that many traders were at risk of moving into losses if OP fails to hold its support levels.

Normally, when a large portion of holders remained in profit, downside pressure can diminish as buyers step in to accumulate at lower prices.

However, if bearish momentum accelerates and OP falls below $0.90, the market could see increased capitulation-driven selling, potentially reinforcing the downtrend.

Are investors still engaged?

Further, over the last 15 hours, OP’s network activity has been mixed. At press time, total addresses stood at 9.75k, with new addresses at 1.3k, active addresses at 6.96k, and zero-balance addresses at 1.49k.

Source: IntoTheBlock

The 7-day trends indicated that new addresses declined by -16.68%, signaling lower user adoption. Active addresses increased by +7.38%, showing existing users remain engaged.

Similarly, zero-balance addresses rose by +10.85%, suggesting liquidations or inactive wallets.

While the increase in active addresses suggested persistent user engagement, the decline in new addresses and rising zero-balance wallets reflect a weakening influx of new investors.

This pattern mirrors past bearish phases, where lower adoption rates correlated with price consolidation or further declines.

Who controls the market?

The Long/Short Ratio chart for OP revealed a sharp divergence in sentiment between standard and perpetual traders.

The normal Long/Short Ratio fluctuated between 0.85 and 1.15, indicating indecisiveness, while the perpetual contracts Long/Short Ratio surged above 2.60, showing a stronger bullish bias.

Source: Coinglass

High Long/Short Eatios in perpetual contracts often precede liquidations, as over-leveraged traders become vulnerable to market swings.

The market may see a sharp correction if OP continues trending downward, triggering long liquidations and pushing prices toward lower support levels.

The supply-demand balance

Over the past 365 days, OP’s circulating supply has increased by +69.27%, reaching 1.62 billion tokens.

This sharp rise in supply, coupled with a declining price, suggests increased sell pressure or inflation outpacing demand.

Source: IntoTheBlock

When supply increases while price declines, market absorption struggles, leading to extended downtrends. If demand fails to catch up, OP could face further price corrections.

However, if accumulation resumes, it could stabilize the market, preventing further drops below $1.00.