Virtuals Protocol (VIRTUAL) has recently fallen below the $2 mark after an unsuccessful attempt to reclaim the $2.4 level. This downturn follows a short-lived rally of 37.2% on January 31, which was quickly reversed as Bitcoin (BTC) pulled back from $106,000 to $99,400. Despite an uptick in short-term spot demand, the overall market sentiment remains bearish, and VIRTUAL may be heading for even lower levels.

Struggles at $2.5 Resistance

VIRTUAL’s price struggled to break through the $2.5 resistance zone, a key level that has capped recent upward movements. The failure to overcome this barrier has led to a sell-off, as the market saw increased selling pressure. While there was a surge in spot demand, as evidenced by the swift increase in the Cumulative Volume Delta (CVD) in the past 24 hours, this wasn’t enough to reverse the broader bearish trend. The market’s inability to clear the $2.5 resistance zone opened the door for further declines.

On the daily chart, VIRTUAL’s price action indicates a persistent downtrend. The bullish rebound seen at the 78.6% Fibonacci retracement level quickly fizzled out, marking the continuation of the overall negative momentum. More significantly, key support levels, including $2.67 and $2.4, have failed to hold. Once supportive levels are breached, they often turn into resistance, and this shift is currently contributing to the ongoing downward pressure on VIRTUAL’s price.

High Volatility and Bearish Indicators

Over the past two weeks, VIRTUAL has experienced heightened volatility, as measured by the Average True Range (ATR). This suggests that large price swings are taking place, and the market is far from stable. Alongside this, the Chaikin Money Flow (CMF) shows a substantial outflow of capital from the market, reinforcing the bearish outlook. These indicators highlight a market struggling to gain momentum, as investors appear hesitant to buy into the asset at higher price levels.

On January 31, a shooting star candlestick formed on VIRTUAL’s chart, which, combined with high trading volume, further emphasized the dominance of bearish sentiment. This technical pattern often signals a reversal from bullish to bearish, contributing to the increasing likelihood of further declines. The inability to hold onto previously important support zones like $2.67 and $2.4 further adds to the negative outlook for VIRTUAL in the short term.

Potential for Short-Term Reversal?

Despite the bearish trends on the daily chart, there are signs emerging in the lower timeframes that suggest a possible short-term reversal. Open Interest, which tracks market positions, has begun to pick up in the last few hours, breaking the downtrend that had persisted until now. This could signal that market sentiment is shifting slightly, as more traders begin to take long positions.

Furthermore, the Funding Rate, which had been negative in the past 24 hours, has shifted into positive territory. This change indicates that short positions are beginning to pay more for leverage, suggesting a shift in sentiment from bearish to slightly bullish, at least for the immediate future. If this momentum continues, it could lead to a brief price recovery or consolidation.

$1.25 as the Next Target?

While short-term signs of a shift in sentiment are visible, the longer-term outlook remains cautious. If the current downtrend persists, the next significant support level for VIRTUAL is at the 23.6% Fibonacci retracement level, which sits at $1.25. If this level fails to hold, VIRTUAL could continue its descent toward even lower prices.

The current price action and market conditions suggest that VIRTUAL is in a precarious position. While short-term spot demand and a positive Funding Rate could signal a potential bounce, the overall trend remains bearish. Traders should be cautious, as the market’s volatility and inability to break key resistance levels imply that further declines may be on the horizon.

Conclusion

Virtuals Protocol’s drop below $2 marks a concerning shift in market sentiment. Despite some short-term demand signals, the overall trend remains bearish, with the failure to reclaim key support levels and persistent volatility indicating that VIRTUAL could be heading toward new lows. Investors should stay alert to potential short-term reversals, but the longer-term outlook suggests continued downward pressure unless a major shift in sentiment occurs.