XLM, the native cryptocurrency of the Stellar network, is currently facing a period of heightened uncertainty, with a potential 40% price drop looming over its future. The latest technical patterns, combined with market sentiment, are pointing towards significant bearish pressure that could push the price of XLM lower in the coming weeks.

Traders are increasingly betting on the downside, as revealed by recent data from CoinGlass, an on-chain analytics platform. According to the data, XLM’s market is dominated by short sellers, with over $5.25 million in short positions compared to just $2.26 million in long positions. This indicates a stronger bearish sentiment among traders, and with many long positions already over-leveraged, any shift in market sentiment could result in a massive liquidation of these positions, further fueling downward pressure on the token.

A key factor contributing to the bearish outlook for XLM is its recent price action. On the daily chart, XLM has formed a bearish inverted cup-and-handle pattern, a technical formation that often signals a potential price decline. This pattern typically indicates a reversal of the previous uptrend, and with the price nearing the neckline of the pattern at the $0.32 level, a breakdown below this support could trigger a sharp sell-off.

Should XLM close a daily candle below the $0.32 mark, the likelihood of a 40% drop to the $0.20 level increases significantly. This level would represent a substantial decline from its current price of around $0.33. While the token remains above the 200 Exponential Moving Average (EMA) on the daily timeframe, suggesting that the overall trend is still technically bullish, the bearish pattern and weakening market sentiment are beginning to outweigh these positive indicators.

Adding to the bearish outlook is the fact that XLM has experienced a price decline of over 7.5% in the past 24 hours, with trading volume dropping by 30%. This decline in volume suggests a lack of conviction among investors, who appear increasingly wary of further losses. The combination of declining volume and the bearish technical pattern makes it increasingly likely that XLM could face further downward pressure in the near term.

The broader economic context also contributes to XLM’s uncertain future. Ongoing tensions between major global economies, including the United States, Mexico, Canada, and China, have created a volatile market environment that is affecting the cryptocurrency space as a whole. As investors become more risk-averse amid these economic pressures, assets like XLM are seeing reduced demand, exacerbating the bearish sentiment.

While XLM’s current market conditions appear to be heavily tilted towards the downside, it’s worth noting that the cryptocurrency market is notoriously volatile, and sentiment can shift quickly. For traders looking to stay on top of the situation, it’s important to watch key support levels, particularly the $0.32 mark. If XLM fails to hold this level, it could trigger a deeper decline, with the $0.20 level being the next significant support.

In conclusion, XLM is currently facing a precarious situation, with a bearish pattern suggesting the potential for a significant price drop. Traders and investors should be cautious, as the market sentiment is heavily skewed towards short positions, and the technical indicators point to a possible breakdown in the near future. Monitoring key support levels will be critical in determining whether XLM can stabilize or if the price will continue its downward trend.