Sonic [S], previously known as FTM, has seen a sharp decline of 17.22% in the last 24 hours after weeks of steady gains. This sudden downturn has caused concerns among traders as liquidity outflows surge and market sentiment turns increasingly bearish.

Liquidity Outflows and Increased Selling Pressure

Sonic had been on a positive trajectory for several weeks, recording a 31.11% rally in the past month and 21.75% in the last week alone. However, the bullish momentum appears to have been halted abruptly. The recent drop in price coincides with an increase in liquidity outflows from the market, signaling a shift toward bearish behavior.

At the time of writing, the Total Value Locked (TVL) in the Sonic ecosystem has decreased significantly, dropping from $736.04 million on February 24th to $694.4 million. This represents a loss of $41.44 million in assets being withdrawn from the market. If the outflows continue, this decline could escalate, further pressuring prices down.

Declining Open Interest Signals Bearish Outlook

Key metrics from the derivative market further highlight the growing bearish sentiment surrounding Sonic. Open Interest (OI), which tracks the number of unsettled derivative contracts, has seen a notable decline of 19.44%, dropping to $114.13 million. This suggests that many contracts are being closed, which usually signals a shift toward negative market sentiment.

The decline in OI is also accompanied by a surge in market volume, which has risen by 49.77%, now sitting at $795.48 million. This rise in volume, paired with a decrease in open interest, further supports the notion that the market is moving toward a bearish trend.

Liquidations Point to Market Downturn

The market’s recent performance has led to significant liquidation events. Over $1.4 million in total has been liquidated in the last 24 hours, with long positions taking the brunt of the losses. Long traders have lost $1.32 million, while short traders have seen far smaller losses of $81.05 thousand. This suggests that the market is currently in a downtrend, with long positions under pressure and short positions benefiting from the decline.

Weakened Confidence and Negative Funding Rates

Trader confidence in Sonic is also waning, with the funding rate turning negative at -0.0071. This indicates that short-term traders are gaining dominance over long traders, further fueling the bearish market sentiment. When the funding rate turns negative, it suggests that short positions are paying a premium to maintain their positions, reflecting the growing expectation of further price declines.

The negative funding rate, combined with increasing liquidity outflows and a decline in open interest, paints a picture of a market in correction. While these conditions may point to a temporary phase of downward price action, the extent of the correction remains uncertain.

What’s Next for Sonic?

While the market is currently in a bearish phase, it’s worth noting that the decline in TVL could be part of a typical corrective phase before a potential rebound. Sonic has seen similar corrective cycles in the past, where prices eventually recovered after an initial drop. However, the current conditions suggest that this corrective phase might not be over yet, and the asset could face further downside pressure before any potential recovery.

With a rising number of short positions and a lack of new liquidity entering the market, traders should be cautious in the coming days. The market’s trajectory largely depends on whether Sonic can regain momentum and attract new liquidity, or if further outflows and sell pressure will continue to drive the price lower.

In summary, Sonic’s recent 17% drop is a result of increasing selling pressure, liquidity outflows, and a shift toward a bearish market sentiment. While some may see this as an opportunity to buy the dip, the market’s outlook remains uncertain, and further declines are a real possibility if current trends persist.