Shiba Inu (SHIB) Price Surges 13%, But Growing Illiquidity Poses Risks to Recent Gains

The Shiba Inu (SHIB) price has recently surged by an impressive 13% over the past week, mirroring a broader momentum in the altcoin market. However, this rally could soon face significant challenges that may erase a substantial portion of these gains.

One of the primary concerns for Shiba Inu (SHIB) price is its growing illiquidity. The token’s bid-ask spread—a critical liquidity metric that gauges the difference between buying and selling prices—has widened, signaling potential trouble ahead. If this trend persists, it could trigger sharp price fluctuations and lead to short-term losses for traders.

At the time of writing, SHIB is trading at $0.000014. However, with the current market dynamics, maintaining this level could be difficult. A closer examination reveals that unless liquidity improves, the Shiba Inu (SHIB) price could drop further, jeopardizing the recent gains.

Low Liquidity, Weak Traction Could Stall Shiba Inu (SHIB) Price Momentum

The recent surge in Shiba Inu (SHIB) price has been met with caution, particularly due to the token’s low liquidity. As the bid-ask spread increases, it becomes harder for traders to enter and exit positions without impacting the price. This phenomenon often leads to heightened volatility and potential losses.

Shiba Inu Bid-Ask Spread. Source: IntoTheBlock

Antoine Le Calvez, a blockchain analyst at Coin Metrics, notes that “a widening bid-ask spread typically indicates a drying up of liquidity, which can cause significant price instability in the short term. For SHIB, this could mean a reversal of recent gains if the trend continues.”

Additionally, Shiba Inu (SHIB) price faces downward pressure from declining network growth. Network growth is a key indicator of user adoption, measuring the number of new addresses conducting their first transaction on the blockchain. In recent weeks, this metric has shown signs of weakness, suggesting that fewer new users are entering the ecosystem.

According to John Isige, a market analyst at FXStreet, “The drop in network growth is concerning for SHIB as it indicates waning interest. Without new users and increased adoption, sustaining the current price levels becomes challenging, potentially leading to a bearish outlook.”

Technical Indicators Point to a Fragile Shiba Inu (SHIB) Price

From a technical standpoint, the Shiba Inu (SHIB) price appears fragile, particularly if liquidity issues are not resolved. The daily chart shows a decline in the Chaikin Money Flow (CMF) indicator, which measures market trading activity to assess accumulation versus distribution.

Shiba Inu Network Growth. Source: Santiment

Typically, a higher CMF reading suggests strong accumulation, often leading to price increases. However, the current decline in SHIB’s CMF indicates that distribution—selling pressure—is outpacing accumulation, a sign that more traders are offloading their tokens rather than buying them.

Katie Stockton, a technical analyst at Fairlead Strategies, explains, “The declining CMF for SHIB is a red flag. It suggests that despite the recent price surge, there is more selling pressure than buying interest, which could drive the price lower in the near term.”

Key Support and Resistance Levels to Watch for Shiba Inu (SHIB) Price

Looking ahead, the Shiba Inu (SHIB) price is approaching a critical support level at $0.000013. If the price drops below this threshold, it could signal a deeper correction, potentially pushing the price down to $0.000010.

“Support at $0.000013 is crucial,” says David Keller, Chief Market Strategist at StockCharts.com. “A break below this level could lead to a swift decline as it would confirm a bearish reversal. On the other hand, holding above this support could provide a base for a recovery, especially if liquidity improves.”

On the upside, the $0.000016 resistance level is pivotal for SHIB bulls aiming to extend the rally. Should the bearish momentum be invalidated and bulls regain control at $0.000016, the Shiba Inu (SHIB) price could target a recovery toward the $0.000020 range.

Shiba Inu Daily Analysis. Source: TradingView

“Breaking above $0.000016 would be a strong bullish signal,” Keller adds. “It could attract more buyers and help sustain the uptrend, potentially leading to a test of the $0.000020 resistance.”

The Shiba Inu (SHIB) price faces a challenging path ahead, with low liquidity and weak network growth threatening to reverse its recent gains. Traders and investors should closely monitor key support and resistance levels, as well as liquidity indicators, to gauge the token’s next move. While the possibility of further declines cannot be ruled out, a recovery is possible if bulls can overcome the current hurdles.

As the crypto market remains volatile, the Shiba Inu (SHIB) price will likely continue to see fluctuations, making it a token to watch in the coming days. Get more from The Bit Gazette