After losing $2 support and falling to a low of $1.8, LayerZero [ZRO] made a strong comeback amid a broader market trend reversal.
The altcoin successfully defended the $2 level and climbed to a local high of $2.25 at press time, after gaining 23% on the daily charts.
Is LayerZero’s demand returning?
The market largely recovered, driven by renewed interest in the derivatives. Previously, ZRO, like most altcoins, saw a collapse in derivatives, which intensified downside pressure.
Now, it seems the trend has reversed. As a result, the altcoin’s Open Interest (OI) surged 31% to $275 million, while the derivatives volume rose 63% to $336 million as of writing.
The rising OI alongside volume implied increased market participation and steady capital flow into new positions. Meanwhile, the altcoin’s Long/Short Ratio rose above 1 across all tracked exchanges.
At these levels, the ratio implied that traders were overly bullish and largely opened new and expanded existing long positions.
Two major hurdles remain for ZRO
Despite the recent gains, LayerZero faces both short and long-term risks. For short-term concerns, the altcoin is experiencing heavy profit-taking.
After the trend reversed the past day, inflows into exchanges skyrocketed, with over $26 million entering exchanges. As a result, the Spot Netflow rose above $3.5 million.
An elevated positive Netflow implied that deposits outpaced withdrawals over the said period, a clear sign of aggressive profit realization.
Typically, when profit takers dominate the market, it raises selling pressure, which usually precedes market weakness.
Additionally, community chatters have raised concerns about the upcoming unlocks. On the 20th of October, LayerZero will unlock 25.7 million ZRO, worth approximately $56.5 million at the current price.
Proxonchain reported that previously, these unlocks have resulted in an over-double-digit slip. This raises concerns about the trend’s long-term sustainability, and given prior behavior, the market could drop.
What do momentum indicators suggest?
Structurally, even with the recent price hike, the momentum is yet to confirm an upside. At the time of writing, the MACD sat below its signal line, suggesting that downward pressure remains strong.
Likewise, the Relative Vigor Index (RVGI) confirmed this trend of weakness, remaining in the negative zone and continuing to decline.
These two indicators suggest that bearish pressure is relatively strong and that bullish pressure is insufficient to prompt a trend reversal.
Therefore, if the profit taking persists, we could see LayerZero fail to extend the rally and fall below $2. The upcoming unlocks will make things worse and intensify the downside, with $1.8 as critical support.
For now, if the recent speculative demand holds, ZRO could clear the $2.4 resistance and target $2.5.
Final summary
- LayerZero surged 24%, defended $2, and rose to a local high of $2.25 amid renewed demand.
- ZRO’s rally attracted increased profit-taking, raising concerns about another pullback alongside upcoming unlocks.