Hyperliquid’s native token, HYPE, is seeing signs of strain. Despite recent efforts to defend its January lows, concerns over a potential price breakdown loom large. With the broader crypto market facing a downturn, will HYPE be able to hold steady, or is it on the verge of a significant price drop?

A Closer Look at the Current Market Conditions

Over the past few months, HYPE, the token associated with the decentralized exchange (DEX) platform Hyperliquid, has experienced mixed performance. The broader cryptocurrency market has seen a substantial decline, with the total market cap down by 13% since early January. Meanwhile, the altcoin market (excluding Ethereum) has taken an even bigger hit, falling 17.5%.

Against this backdrop, HYPE has managed to hold relatively steady, down just 7.2% from January 9. However, recent price action on HYPE’s 1-day chart suggests the token is now testing the crucial support levels that were established in January. Specifically, HYPE has tested the $18.5 level multiple times, a key price point that bulls have successfully defended so far. But with selling pressure rising, the token’s future hangs in the balance.

Selling Pressure Weighs on the Market

One key indicator of HYPE’s potential weakness is the On-Balance Volume (OBV) metric, which has taken a sharp downturn. OBV is an important tool that tracks buying and selling volume. In this case, the OBV has dropped significantly, dipping below January lows, even as HYPE’s price remains relatively stable. This suggests that while the price might not have fallen yet, the underlying market sentiment is growing more bearish, and without a significant uptick in buying volume, HYPE could soon break below the critical $18.5 support.

Hyperliquid’s User Base and Volume Trends: A Mixed Outlook

Despite the current concerns, Hyperliquid’s performance has shown some positive signs. According to data from Dune Analytics, the platform saw impressive growth in both daily trading volume and new users during November and December. This was a reflection of the platform’s increasing popularity and its ability to attract traders during a particularly volatile period in the market.

However, since January, the number of new users has slowed down, with the growth trajectory flattening. Even more concerning, daily trading volume has also stagnated, failing to show the same upward momentum that characterized the final months of 2024. While this could signal a plateau, it’s important to note that Hyperliquid has not experienced a sharp decline either. The platform’s user base has remained relatively stable in recent months, suggesting that while market conditions are tough, Hyperliquid continues to retain a core group of users.

The Importance of Fee Revenue: Can It Help Support HYPE’s Price?

Another positive development for Hyperliquid has been the rise in fees generated from transactions. Compared to late December, the fees generated by the platform have increased, a direct result of higher trading volume. However, it’s important to note that this increase in fees may not necessarily translate into an increase in demand for HYPE itself. The general market sentiment remains bearish, and a rise in fees may only suggest that existing traders are more active, rather than new users entering the market in large numbers.

This fee growth does show that Hyperliquid remains an active platform, despite the overall market downturn. Yet, whether this sustained activity can counteract the bearish pressure on HYPE’s price remains to be seen.

The Declining Open Interest: A Sign of Caution Among Traders

One particularly concerning metric for HYPE is the trend in Open Interest, which has been steadily falling over the past ten days. Open Interest refers to the total number of outstanding derivative contracts that have not been settled. A decline in Open Interest typically signals a reduction in speculative trading activity, with traders becoming more cautious and risk-averse.

As of now, the lower Open Interest suggests that many traders are choosing to stay on the sidelines, reflecting the prevailing bearish sentiment. This is a worrying sign, especially when combined with the rising selling pressure seen in the spot market. With fewer traders involved in speculative positions, HYPE could struggle to avoid a major price breakdown if market conditions continue to deteriorate.

What’s Next for HYPE?

Given the current market conditions, a further drop in HYPE’s price below the $18.5 support level seems increasingly likely, especially if Bitcoin, the leading cryptocurrency, falls below the psychological $80,000 threshold again. Such a move could trigger even more selling pressure across the market, pulling HYPE down with it.

That being said, all hope is not lost for HYPE holders. If the broader market sentiment shifts and there is a recovery in the coming days, HYPE could see its price stabilize, with bulls attempting to defend the $19 support zone. The platform’s stable user base and consistent fee revenue suggest that Hyperliquid still has potential, though much will depend on whether the market as a whole can turn bullish again.

In conclusion, while Hyperliquid has shown resilience in terms of user engagement and fee generation, the declining Open Interest, rising selling pressure, and general market weakness are signals that HYPE may be heading towards a significant price correction unless a reversal in sentiment occurs soon. Crypto investors and traders will need to monitor these indicators closely to assess the likelihood of a breakdown or recovery in the near term.