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The Polkadot token has crashed by double digits in the past two weeks
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The cryptocurrency was among the tokens heavily shorted on major exchanges
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DOT maintains a downtrend and the next level to watch is $3.9
Barely two weeks ago, bets against many altcoins were on the rise. Santiment data indicated that Polkadot (DOT/USD) was among the cryptocurrencies targeted by shorts on major exchanges. At the time of Santiment data on December 10, DOT was trading at $5.3. The cryptocurrency now exchanges hands at $4.5, a loss of 17%. Are the short positions responsible for this?
The definite answer to the question could be yes, although that’s not always the case. Increased short positions can actually boost an asset’s price. That happens when investors cover their short positions, leading to a market phenomenon known as a “short squeeze.” However, as it looks, there are no signs of a short squeeze for DOT. The cryptocurrency maintains a downtrend, probably orchestrated by increased selling.
DOT outlook as price heads to the 2020 lows
Turning to the weekly chart gives a glimpse of Polkadot trading since the bull market started. From the chart, DOT trades at its lowest level since December 2020. Evidently, the cryptocurrency has lost all the gains it amassed during the bull market of 2021.
The volume indicators show that liquidity is waning as DOT heads lower. The price is set to find support at $3.96 next. The current price zone could interest buyers since this is where the bull market started.
Concluding thoughts
It would be interesting to see how the DOT price behaves at or around $4. Any potential bullish reversal should start here. There is no indication of that yet, as the cryptocurrency remains very bearish.
Buyers could hold DOT in consolidation mode at the crucial zone before finding the energy to break higher. DOT-related developments and improved sentiment in the broader crypto sector are the events to watch. A bearish break at $3.9 could pit DOT below $2.