Algorand (ALGO) has been riding high in recent weeks, with a significant increase in active addresses on its network. Since December 1st, active addresses surged by an astonishing 300%, jumping from 123,570 to 427,230, signaling a rise in network activity. Such increases typically indicate growing adoption and usage, often translating into price gains. However, despite this surge, ALGO’s price has dropped by 10.5% in the past 24 hours, leaving traders puzzled.

Over the past month, Algorand had seen a notable price increase, reaching a high of $0.6133. However, in the last 48 hours, the price dropped sharply to a low of $0.459, with the token currently trading around $0.475. This drop follows a rapid rise of 66.51% on weekly charts and an impressive 318.99% increase over the past month.

Active Addresses and Their Impact on Price

An increase in active addresses generally suggests higher network usage, which can fuel price growth through increased demand. The 300% rise in active addresses was initially seen as a positive development, driving expectations of further price appreciation. A growing user base can lead to higher transaction volumes, fostering confidence in the token’s future and bolstering its value.

Despite the surge in active addresses, ALGO’s price has reversed, which may seem counterintuitive. However, this drop is likely a market correction after an extended bullish phase. Price corrections often follow periods of rapid growth, as markets stabilize and adjust to more realistic levels.

Market Correction and Bearish Sentiment

The sharp price drop reflects a broader market correction in Algorand’s chart. While the network showed significant growth, the sudden decline points to selling pressure, with a higher volume of sell orders in the market. One of the factors contributing to this pullback is the behavior of large holders, or “whales.” According to data, large holders have sold more ALGO than they have bought in recent days, pushing the netflow of large transactions to a three-month low of -25.34 million tokens. This indicates a lack of confidence from institutional investors and whales, who often lead price action.

Additionally, whale activity has slowed down, with the number of large transactions dropping from 309 to 162. When whales reduce their activity, it often signals uncertainty or a waiting period until market conditions improve. This hesitance among large investors adds to the overall bearish sentiment.

Market Positions and Trader Sentiment

Recent data shows that most traders are now taking short positions, betting that ALGO’s price will continue to decline. According to Coinglass, the long/short ratio reveals that there are more traders betting against the price than in favor of it. This indicates that traders expect further downside in the short term. Furthermore, Algorand’s DyDx exchange funding rate has turned negative, reflecting an increased demand for short positions compared to long ones. Negative funding rates suggest that bearish sentiment is dominating the market.

Looking Ahead: Support and Resistance Levels

Despite the current price dip, Algorand’s long-term prospects remain solid. If the market correction continues, the next key support level for ALGO lies around $0.45. Should the bulls regain control, a potential rebound could see the price move toward resistance at $0.71.

In conclusion, while Algorand’s surge in active addresses signaled strong network growth, the price correction suggests a temporary shift in market sentiment. The combination of large holders selling off their positions, declining whale activity, and bearish trader sentiment has driven the recent price drop. However, if buyers re-enter the market and the network’s adoption continues to grow, Algorand could see its price stabilize and even recover in the coming weeks.