• Optimism (OP) saw a jump in its price and social dominance following the launch of Coinbase’s BASE Ethereum layer-2 network.
• Many believe that the $3.06 peak price marked a local top and could be followed by a price reversal.
• Several on-chain indicators, such as Age Consumed and Network Profit/Loss ratio (NPL), have proven to be effective in identifying local market tops.
Overview of Optimism Jump
The hype surrounding the testnet launch of Coinbase’s BASE new Ethereum ETH layer-2 network has led to increased discussions about Optimism OP, resulting in a jump in its price and social dominance. This pushed OP’s social dominance to register a six-month high of 1.67% on 24 February, with its price peaking at $3.06% the same day.
Excessive Social Media Mentions
Excessive social media mentions, particularly during a price surge, can indicate peak hype and irrational confidence in a coin’s market performance. Such spikes in social activity frequently signify local price tops and subsequent periods of cooling off.
On-Chain Metrics for Identifying Local Market Tops
Several on-chain indicators have proven effective in identifying local market tops, including Age Consumed which tracks the activity of previously inactive coins on a network, with spikes suggesting that a significant number of idle tokens are changing addresses indicating major shifts in behavior among long-term holders. On 24 February when OP’s price rallied, its Age Consumed metric likewise spiked showing previously dormant OP tokens changed hands as HODlers capitalized on the rally to log profits – shortly followed by an expected decline in value afterwards.
Network Profit/Loss Ratio (NPL)
Another key metric is the Network Profit/Loss ratio (NPL). As OP’s grew on 24 February, its NPL also rallied to a three-month high indicating traders who bought into OP’s position during its surge quickly closed their positions reaping profits before exiting the market – again followed by an expected decline in value afterwards..
Open Interest
Lastly, Open Interest confirmed this drop as open trade positions saw reduced activity thereafter