The XLM price went parabolic last week, making it one of the best-performing cryptocurrencies. Stellar Lumens surged to a high of $0.5155 on Monday as the crypto market rally intensified. It has now pulled back slightly to $0.45, and this article will explain why it may drop further in the near term.
Why XLM Price May Crash Soon
The daily chart shows that Stellar, commonly known as XRP’s “little cousin, staged a strong comeback, moving from a low of $0.2170 in June to a high of $0.5155 on Monday. This rally was in line with our forecast, as shown here and here.
The surge was notable as the coin moved above the upper side of the descending channel that connects the highest and lowest swings since December last year.
However, four main concepts explain why the Stellar price may crash this week. First, it is normal for an asset to pull back when it goes parabolic, as it did in the past few days. This retreat occurs due to profit-taking among investors. A good example of this is when it surged by triple digits in November and then pulled back.
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Second, the XLM price is expected to retreat due to the concept of mean reversion. This is a situation where an asset plunges back to its historical averages. In this case, XLM is trading at $0.45, significantly higher than the 50-day moving average point of $0.2827 and the 100-day MA of $0.2800.
Third, the coin may retreat because of a process known as a break-and-retest pattern. This is where an asset makes a strong bullish breakout above a crucial resistance level and then retreats and retests that level. This break-and-retest is one of the most bullish patterns in technical analysis.
Finally, the XLM price will likely crash because it has become highly overvalued, as demonstrated by the Relative Strength Index (RSI) and the Stochastic Oscillator, which have both reached extreme overbought levels. It is normal for a highly overbought asset to undergo a temporary decline.
Why Stellar Lumens Token Price Surged
The Stellar price surged due to increased demand from investors, who drove its open interest in the futures market to a record high. It soared to a high of $502 million, surpassing the previous all-time high of $432 million.
The XLM price also jumped due to a data point showing a strong surge in its stablecoin market cap. This figure soared to a record high, while the total value locked (TVL) in the network jumped by over 63% in the last 30 days to over $137 million. This is a sign that the network is gaining traction.
However, the stablecoin supply metric by DeFi Llama surged because it includes the Franklin Onchain Money Market Fund, which has $446 million in assets. Excluding this figure, the stablecoin supply in the network is valued at $181 million.
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