Chainlink [LINK] drops to crucial support zone: Is a price reversal likely?

Disclaimer: The information presented does not constitute financial, investment, trading, or other types of advice and is solely the writer’s opinion.

• LINK dropped to a key demand zone.
• LINK monthly holders’ profits tanked.

Chainlink [LINK] saw a short-term devaluation on 30 January, but a recovery could be likely. LINK plunged by 10%, dropping from $7.518 to $6.748. The drop followed Bitcoin’s [BTC] price action after the king coin lost hold of the $23k zone – setting most of the altcoins into short-term price correction. 

Read Chainlink’s [LINK] Price Prediction 2023-24

At press time, LINK’s value was $6.925 and flashed green after hitting a key support zone. 

The support zone of $6.754 – $6.883: Can bulls prevail?

The range level of $6.754 – $6.883 (green) was a key resistance zone before being flipped into a support area. It blocked LINK’s rally around mid-January and became a selling pressure zone, pushing LINK to new support at $6.329.  

But a bearish breaker on 20 January flipped the level to support. Since then, the level has been retested twice and breached once as support. Therefore, it has proven to be a key demand zone that could boost bulls’ recovery efforts. 

As such, it could help bulls launch a recovery targeting the new selling pressure zone (red) at $0.7500. In addition, a retest of the December high of $7.681 could be possible if BTC reclaims the $23.5k level and surges afterwards. 

However, a breach below the support zone will invalidate the above bullish bias. But the drop could be contained by $6.606 or $6.329 levels. 

The On Balance Volume (OBV) has increased since mid-January, showing an increasing demand for the asset. LINK’s RSI value was 50; thus, it was in a neutral structure at press time. So, any extra surge in demand could help bulls to sustain the price recovery. 

Chainlink monthly holders’ profit declined, but trading volume increased

Source: Santiment

As per Santiment data, LINK’s sharp price decline saw a massive drop in monthly holders’ profit, as evidenced by the neutral 30-day MVRV (Market Value to Realized Value) ratio. It means monthly holders’ profits had declined to zero. But a price recovery could help recover the losses. 

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Despite the profit decline, weighted sentiment remained positive, indicating that investors were bullish on the asset. In addition, there was an uptick in trading volumes, as indicated by a surge in daily active addresses. Therefore, a price reversal could be likely, and the support zone could hold strong for the bulls’ recovery. 

However, the FOMC meeting could unsettle bulls if it adopts a hawkish stance. Therefore, investors and traders should track FOMC announcements and BTC’s price action.