The price of Optimism (OP) has been skyrocketing since the beginning of July due to its proximity to Ethereum.
Notably, OP's price rallied by nearly 300% in over a month to reach $2.31, its second-highest level on record, on Aug. 4. The token received its bullish cues primarily from the euphoria surrounding Ethereum's potential transition to proof-of-stake in September via an upgrade called "the Merge."
OP/USD four-hour price chart. Source: TradingView
To recap: Optimism is an Ethereum rollup solution. In other words, the so-called layer-2 solution handles a bundle of Ethereum's transaction verifications off-chain to boost scalability on the main chain.
Optimism could benefit from the Merge due to Ethereum's "Rollup-Centric Roadmap," which turns its main chain into a settlement and data availability layer and places scalability in the hands of layer-2 rollups via "danksharding."
"Currently, with the combined rollup and Ethereum architecture, the current Ethereum-only transaction throughput of 15–45 TPS could scale to as much as 1,000–4,000 TPS," noted Ally Zach, a researcher at Messari, adding:
"The introduction of shards has expanded the data storage capacity for rollups to increase this throughput to [the] north of 100,000 TPS."
That explains why OP and other layer-2 tokens have responded positively to the Merge announcement on July 15.
Ethereum layer-2 tokens and their performances on different timeframes. Source: Messari
Despite strong fundamentals, OP's technical metrics suggest its rally could exhaust in the coming weeks.
On the four-hour chart, OP's rising price coincides with its falling relative strength index (RSI), indicating "bearish divergence." Meanwhile, the attempted breakout above the $2-level has faced strong rejection twice since July 29, including its 15% drawdown after peaking out locally at $2.31 on Aug. 4.
OP/USD 4-hour price chart. Source: TradingView
Therefore, an extended correction could have OP test its 50-4H exponential moving average (50-4H EMA; the red wave) near $1.54 as its interim downside target. This curvy level has limited OP's downside attempt on Aug. 2.
Related: Ethereum average gas fee falls down to $1.57, the lowest since 2020
Moreover, a break below the 50-4H EMA could push OP to $1.36, down 30% from today's price. Interestingly, the $1.36-level also served as support in August and coincides with a multi-month ascending trendline support.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
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