Stellar (XLM), which surged over 100% in the past week, has now witnessed a sharp decline in Open Interest. This drop in XLM Open Interest indicates waning enthusiasm among derivatives traders, potentially indicating a weakening in the recent rally’s momentum.

Although holders may remain optimistic, on-chain analysis suggests that XLM’s price could face a significant correction if the current market condition does not change. 

Stellar Market Dominance Fizzles

On November 24, XLM Open Interest climbed above $339 million, which was an all-time high. As reported earlier, this massive interest in the altcoin is linked to the surge in Ripple (XRP) price. 

However, as of this writing, the OI, as it is commonly abbreviated, has fallen to $209 million. This drop indicates that traders have closed previously open contracts worth $130 million. Unsurprisingly, this decline coincided with XLM’s price decrease, which caused it to lose 10% of its value in the last 24 hours.

From a price perspective, the drop in OI means buying pressure in the derivatives market has decreased. Hence, if the OI value continues to decline, then XLM’s price is likely to fall below $0.45.

Another bearish signal for Stellar is its declining social dominance. This metric evaluates the proportion of discussions about a cryptocurrency compared to the top 100 assets. When social dominance rises, it typically indicates heightened market interest and demand. Conversely, a decline suggests diminishing attention and potentially lower demand. 

A few days ago, XLM’s social dominance was at 3.13%. However, it has dropped significantly to 1.73%, implying that market participants are shifting their focus to other assets. If this trend persists, it could lead to further price drops for XLM.

XLM Price Prediction: Push Back to $0.28 Likely

If the declining OI and social dominance continue, XLM may struggle to sustain its recent gains. On the daily chart, the Money Flow Index (MFI) reading has dropped. The MFI measures buying and selling pressure and tells if an asset is overbought or oversold.

When the reading is above 80.00, it is overbought. But when it is below 20.00, it is oversold. As seen below, the MFI hit the overbought zone earlier before it retraced. Considering the current condition, XLM’s price could decline to $0.28.

However, a break below the $0.22 support level could push the price down to $0.17. On the flip side, if buying pressure increases in the derivatives and spot market, this might not happen. Instead, XLM could rally to $0.64.

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A US federal appeals court struck down sanctions imposed by the Treasury Department on Tornado Cash. This popular crypto-mixing service enables users to anonymize their cryptocurrency transactions through smart contracts.

The ruling, delivered by the Fifth Circuit Court of Appeals, marks a significant victory for decentralized technology proponents and privacy advocates. At the same time, it reignites debates about how to regulate the use of blockchain tools in connection with criminal activities.

Treasury Department’s Sanctions Against Tornado Cash Overturned

The Treasury’s Office of Foreign Assets Control (OFAC) had sanctioned Tornado Cash in 2022. According to the agency, the platform was a key tool for illicit actors, including North Korea’s Lazarus Group, to launder stolen funds.

However, the court ruled that OFAC overstepped its authority. It emphasized that the immutable smart contracts underpinning Tornado Cash cannot be considered property under the International Emergency Economic Powers Act (IEEPA).

The appellate court’s decision hinged on the nature of Tornado Cash’s smart contracts. These are autonomous lines of code designed to function without human intervention.

These contracts, deployed on the Ethereum blockchain, are unalterable and accessible to anyone. The court found that such contracts do not meet the legal definition of “property” because they cannot be owned, controlled, or restricted.

“The immutable smart contracts at issue are not property because they are not capable of being owned,” the court wrote.

The court further noted that while sanctions might block certain individuals from using Tornado Cash, the technology’s decentralized nature ensures that no one, including North Korean hackers, can be entirely prevented from accessing it. Paul Grewal, Coinbase’s Chief Legal Officer, hailed the ruling.

“This is a historic win for crypto and all who cares about defending liberty…These smart contracts must now be removed from the sanctions list and US persons will once again be allowed to use this privacy-protecting protocol. Put another way, the government’s overreach will not stand… No one wants criminals to use crypto protocols, but blocking open source technology entirely because a small portion of users are bad actors is not what Congress authorized. These sanctions stretched Treasury’s authority beyond recognition, and the Fifth Circuit agreed.” Grewal wrote on X (formerly Twitter),

Grewal also emphasized the importance of distinguishing between tools and their misuse. Of note, Coinbase, a leading cryptocurrency exchange, was among the entities that sued the government over the sanctions.

Broader Implications for Crypto Regulation

The ruling exposes the challenges of applying existing legal frameworks to decentralized technologies. Crypto-mixing services like Tornado Cash occupy a legal gray area, prompting calls for scrutiny by US lawmakers.

They are neither traditional financial (TradFi) institutions nor entities capable of being controlled by a central authority. Critics of the ruling argue that it could embolden bad actors to exploit blockchain technology further.

“If you think Tornado Cash has been used by good people for worthwhile purposes then make your case…If privacy protects good people it’s good, if it protects bad people it’s bad. The vast majority of people that Tornado Cash has protected are doing bad,” one user on X quipped.

Some lawmakers have previously pressed the Treasury to adopt stricter measures against crypto mixers. In 2022, members of Congress highlighted concerns about their role in facilitating money laundering and funding terrorism. A bipartisan push aimed to ensure that tools like Tornado Cash, often associated with criminal networks, face regulatory scrutiny.

However, privacy advocates argue that targeting the tools rather than the actors undermines the principles of decentralization and privacy. Bill Hughes, a lawyer at ConsenSys, applauded the court’s nuanced understanding of the issue but highlighted a key issue. He cautioned that regulatory risks remain.

“This does NOTmean that the rest of Tornado Cash is out of bounds for Treasury/OFAC too. The issue was about smart contracts with no admin key,” Hughes wrote.

This means that the court’s decision does not shield Tornado Cash from other legal challenges, particularly those concerning its founders. As BeInCrypto reported, they face accusations of facilitating money laundering. Moreover, the broader debate over how to regulate decentralized technologies remains unresolved.

Following the ruling, however, Tornado Cash’s native token, TORN, is up almost 400% to trade for $17.63 as of this writing.

This surge reflects investor optimism about the protocol’s potential resurgence and its implications for decentralized finance (DeFi) projects.