Merlin Chain's Remarkable Growth: Is a MERL Price Pullback Inevitable After Reaching $75 Million in Open Interest?

MERL climbs on strong derivatives activity and spot accumulation

Merlin Chain (MERL), a layer-2 solution for Bitcoin (BTC), has experienced a significant increase in on-chain activity recently, coinciding with a steady price range for Bitcoin. The price of MERL surged by 16%, with the number of token holders reaching 173,800. However, despite this bullish trend, signals suggesting a potential pullback loom in the background of the broader market.

Key Takeaways

MERL price increased by 16%, driven by higher liquidity in the derivatives market.
The Open Interest (OI) for MERL derivatives hit an all-time high of $75.79 million.
Spot market investors are accumulating MERL, but outflows remain low.
Despite upward momentum, a potential price pullback could occur due to market structure.

Surge in Liquidity Drives Price Upward

The recent increase in MERL’s price is mainly due to a significant influx of liquidity in the derivatives market. As of now, MERL’s perpetual Open Interest (OI), which indicates the total value of outstanding derivatives contracts and overall market liquidity, reached a new record of $75.79 million. This considerable increase reflects the prevailing bullish sentiment in the market, with OI expanding by nearly $27 million in just one day.

MERL Open Interest chart

Source: CoinGlass
This surge in one-day inflows comprises both long and short positions, but current trading data suggests that long positions are prevalent. The overall trading volume has also shifted positively, illustrated by a Taker Buy/Sell Ratio of 1.05, indicating that buy orders are driving cumulative volume and bolstering short-term bullish pressure.

Spot Market Participants Join the Rally

Spot market investors have also been adding to their MERL holdings, which is limiting the asset's available supply. Exchange outflows have been relatively low, with around $700,000 worth of MERL withdrawn from centralized exchanges in the last 24 hours. While this level of outflow does not strongly affirm a bullish market structure on its own, ongoing accumulation paired with routine net outflows raises the likelihood that MERL can sustain its upward path, as many bullish investors see the current price as a worthwhile investment.

MERL accumulation.

Source: TradingView
The accumulation/distribution indicator has also seen a rise, suggesting increased buying pressure compared to selling. Nevertheless, it remains in negative territory, indicating that the recent buying activity hasn't yet fully countered the heavier selling observed in the past week, which contributed to earlier price declines.

Potential for a Price Pullback?

Despite recent upward momentum, MERL still exhibits downside risks, as highlighted by the liquidation heatmap. This tool displays liquidity concentrations above and below the current price, signaling potential market movements. Areas of liquidity above the current price may push it higher, while clusters below can suggest a pullback as the market seeks to fill those gaps.

MERL price chart.

Source: CoinGlass
At present, MERL’s price surge has enabled it to surpass major liquidity zones. Consequently, the majority of liquidity concentrations are now below the current trading range. According to typical market behavior, this setup heightens the chances for a short-term price pullback, though such outcomes are not guaranteed. A significant exception could arise if bullish momentum continues to strengthen, allowing the price to overcome typical behavior influenced by liquidity.

Closing Thoughts

As MERL navigates this pivotal moment in the market, investors should remain cautious of the potential for a price correction even amidst positive trends. Keeping an eye on both trading volume and market sentiment will be essential for gauging future movements in the cryptocurrency landscape.